Tommy Broughan (Dublin North East, Labour)
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Question 62: To ask the Tánaiste and Minister for Finance if he is considering changes to the current VAT regime; and if he will make a statement on the matter. [19669/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
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The position is that VAT rates are applied in accordance with the rules and rating structures provided for under the EU VAT Directive. It is EU law, agreed by all Member States, that defines the scope for applying a rate to a good or service. In this regard, Ireland, apart from the farmers' flat rate VAT addition, operates three rates of VAT:

Zero-rate which generally applies to most food, children's clothes and shoes, and oral medicines. While it is possible to retain the zero rating for goods and services that were in place on 1 January 1991, no new zero VAT rates can be introduced;

Reduced rate of 13.5 per cent which applies, for example, to hot food, cinemas and certain live animals and plants. Member States may have up to two reduced VAT rates of not less than 5 per cent for a specified number of goods or services which are set out in Annex III of the VAT Directive;

Furthermore, Member States have the option of maintaining, at a reduced rate of not less than 12 per cent, any items not listed in Annex III, provided they carried that reduced rate on 1 January 1991. These items are considered to be 'parked' and Ireland's parked rate equates to our reduced rate of 13.5%. Domestic fuels and labour intensive services are examples of parked items.

Standard rate of 21 per cent for goods or services which are not zero rated or reduced rated. Examples would include; cars, electrical equipment, motor fuels and CD/DVDs. Under the VAT Directive Member States may set the standard VAT rate not lower than 15% — there is political agreement that the standard rate of VAT applying in each Member State does not exceed 25%.

The Deputy will be aware that the Programme for Government contains a commitment to examine the scope for reducing the VAT rate on environmental goods and services from the standard VAT rate of 21 per cent to the reduced rate of 13.5 per cent. This and other measures under the Programme for Government clearly demonstrate the Government's commitment to addressing the environmental challenges which we face.