Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 79: To ask the Minister for Finance his views, in the interest of public health, on removing the VAT on nicorette and other such products that help reduce or end dependence on nicotine; and if he will make a statement on the matter. [29090/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I should explain that Nicorette sublingual tablets, Nicorette Inhalers and Nicorette chewing gum are chargeable to VAT at the zero rate. The basis for the zero rating of these products is that they come within paragraph (xiii) of the Second Schedule to the VAT Act 1972 as "medicine of a kind used for human oral consumption". Nicorette chewing gum was zero-rated as the product requires authorisation from the Department of Health and Children, being classed as a medicinal product subject to the same controls which apply to medicines generally.

Nicotine patches are, however, subject to the standard VAT rate of 21% and can not be zero-rated as they are not a medication used for human oral consumption.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 80: To ask the Minister for Finance his views, in the interest of public health, and tackling obesity in particular which was identified as a key public health challenge for the Government, on removing the VAT on exercise bikes and other exercise equipment and bicycles; and if he will make a statement on the matter. [29091/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I should explain that the VAT regime for goods and services is governed by EU law with which Irish Law must comply. Under the EU VAT Directive, Member States may retain the zero rates on goods and services which were in place on 1 January 1991, but cannot extend the zero rate to new goods and services. As exercise bikes, exercise equipment and bicycles were not subject to the zero rate on 1 January 1991 it is not possible to apply the zero rate to the supply of such products. In addition, Member States may only apply the reduced VAT rate to those goods and services which are listed under Annex III of the EU VAT Directive. While Annex III does include the supply of certain pharmaceutical products used for health care and also medical equipment for the exclusive personal use of a disabled person, it does not include goods such as exercise bikes, exercise equipment and bicycles. Therefore it is not possible to apply the reduced rate of VAT to these items. The only rate of VAT that can apply to exercise bikes, exercise equipment and bicycles is the standard VAT rate which in Ireland is 21%. I would add, however, that Annex III of the VAT Directive does include the use of sporting facilities and, accordingly, Ireland applies the reduced rate to the use of gyms and health studio businesses.

Aengus Ó Snodaigh (Dublin South Central, Sinn Fein)
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Question 81: To ask the Minister for Finance if, in the interest of public health and road safety, he will allow those taking driving lessons to be able to claim back the tax paid on fees to encourage provisional licence holders to prepare for their driving tests. [29092/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy should be aware that matters of road safety are primarily the responsibility of the Minister for Transport. Proposals for new tax reliefs or the extension of existing ones must be seen in the light of the public finances and demands on the Exchequer and, in accordance with long standing practice, are matters to be considered in the context of the annual Budget and Finance Bill process.

Richard Bruton (Dublin North Central, Fine Gael)
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Question 82: To ask the Minister for Finance if his attention has been drawn to the complaints that the Revenue Commissioners, in enforcing strict compliance with the relevant contracts tax provisions, have sought to recover tax a second time and impose penalties for failure to keep proper records even though the Exchequer has suffered no loss; and his views on ensuring that penalties in such a case would be proportionate. [29103/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am aware that the Revenue Commissioners have tightened their fiscal control of the construction industry in recent years. Starting in late 2005, Revenue conducted a national campaign of audit and site visits in the industry to establish the levels of tax compliance and to tackle abuse.

One of the key problems identified was the fairly common failure to operate the construction industry withholding tax, known as RCT (Relevant Contract Tax).

RCT is a withholding tax operated by a principal contractor on payments to subcontractors. A subcontractor can avoid the withholding tax by applying to Revenue for a so-called C2 certificate. This allows the sub-contractor to be paid without tax deduction provided that the principal contractor applies to Revenue for a payments card for the sub-contractor. This card is issued where Revenue is satisfied that there is a contract between the principal and sub-contractor and the subcontractor has a satisfactory tax record. The card provides an auditable link between the two parties and is an essential part of Revenue control.

It became clear in 2006 that in many cases, payments were being made without tax deduction where these terms of the RCT scheme were not met. There was worrying evidence of organised fraud involving criminal gangs who used the system to extract fraudulent refunds.

Revenue undertook widespread publicity campaigns to explain the proper operation of the tax. They issued briefing papers to accountants, and to contractors through trade magazines. Revenue spoke at forums held by the Irish Taxation Institute to over 1,000 tax accountants.

Finally, for cases where the tax had not been properly operated, Revenue created a mechanism for end year collection to help principal contractors regularise their RCT and avoid being hit with a charge to tax, interest and penalties for failures to operate RCT properly.

Despite this, many cases have turned up in audit where RCT has not been properly operated; in particular, there has been a failure to use the key control document, the relevant payments card. Legally, this failure places the tax liability on the principal contractor. Some principal contractors faced with Revenue audits have argued that failure to withhold the RCT has not resulted in tax loss as the sub-contractors in the case were fully compliant with tax law. However, Revenue cannot establish this in any cost-effective way. I am advised by Revenue that in these circumstances they have proposed a mechanism that would allow the principal and sub-contractor to retrospectively adjust the tax liability between them so as to eliminate any double taxation. Unfortunately, some contractors have been unable or unwilling to make these adjustments. The majority of taxpayers in the construction industry are not affected by the problem as they operate RCT correctly.