Joan Burton (Dublin West, Labour)
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Question 154: To ask the Minister for Finance his views on whether there are many motorists escaping the payment of VRT by driving foreign registered cars which remain undeclared to the authorities here; the amount of revenue he estimates to be lost to the Exchequer on an annual basis as a result; the measures in place to crack down on this practice; if he will bring in more stringent measures to ensure that significant amounts of VRT are not lost to the Exchequer and that cars are not being driven on roads here on a long-term basis without appropriate taxation being paid; if his attention has been drawn to the practice whereby car dealers import foreign cars which do not possess a correct TAN number and therefore escape the payment of VAT and VRT; the measures in place in order to crack down on this practice; if he will introduce further such measures; and if he will make a statement on the matter. [43431/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am advised by the Revenue Commissioners that as a general rule all vehicles imported permanently into the State must register for Vehicle Registration Tax (VRT) purposes within one working day of arrival. This rule applies equally to vehicles imported by EU and non EU persons. In practice, Revenue allows latitude of a maximum of seven days for registration.

However, Section 135(a) of the Finance Act 1992 permits a European or other foreign-registered vehicle which is temporarily brought into the State by a person established outside the State to be exempted from the requirement to register for VRT purposes for a period normally not exceeding 12 months from the date upon which the vehicle concerned was brought into the State.

There is no requirement for vehicles imported under temporary exemption provisions to be presented to the Revenue Commissioners in order to avail of the relief. Documents relating to ownership, registration and the importation of the vehicle into the State must be kept with the vehicle when it is in use in the State. When such vehicles fail to meet the conditions for temporary exemption, they must be permanently removed from the State or presented for registration. Details of such vehicles are therefore not normally captured or held in the vehicle registration system.

Statutory Instrument No. 60 of 1993 prescribes the criteria for eligibility for the granting of temporary exemption on registration. These provisions are in line with Article 39 of the EU Treaty, which provides for the free movement of people within the EU; and a reciprocal arrangement is also in place for our own State residents in fellow Member States.

The Deputy may wish to note that Revenue mobile units and An Garda Síochána continue to monitor both Irish and foreign-registered vehicles on our roads as part of their regular and ongoing enforcement activity. For their part, Revenue mobile units challenged 16,831 vehicles up to the end of October this year. Of these, some 12,177 satisfied Revenue officials that the registration status was in order at that particular time and no further action was taken. 2,142 vehicles were registered for VRT purposes as a direct consequence of these investigations and a further 1,286 were seized. In addition to the VRT collected, penalties in excess of €960,000 were charged in respect of these vehicles. Up to the end of October 2008, some 50,000 second hand vehicles were registered and the total VRT paid amounted to €170m. There is no doubt that there is some evasion of VRT with individuals delaying registration as long as possible. The Deputy will be aware that I have brought forward proposals in the Finance Bill to address this issue, by tightening the rules in relation to the registration of second hand vehicles and the late payment of VRT.

Dealers in vehicles are entitled to import second-hand vehicles. If they are authorised to hold and deal in unregistered vehicles (TAN holders), they must register the vehicle on the sale of the vehicle to a private individual or other unauthorised person. If they are not a TAN holder, they must register the vehicle in the normal way. In relation to the registration of second hand vehicles by dealers who are either not TAN holders or who are abusing their authorised status, Revenue officials are constantly monitoring potential evasion of VRT and VAT. I am advised by Revenue that new measures to cancel an authorisation to hold unregistered vehicles introduced since the 2008 Finance Act are being implemented in specific cases of abuse of the authorised dealer status.

I am very conscious of the area of VRT evasion and the distortion of competition. The measures I am introducing in the Finance Bill are part of our response. Ongoing enforcement activity by the various agencies within the sector — the Road Safety Authority, the Gardaí, local authorities and Revenue — aim to ensure compliance with all aspects of traffic management of the national vehicle fleet. Indeed, it should be borne in mind that the right to import a vehicle, register it and pay the appropriate taxation on time is protected and honoured by the majority of those who source their vehicles abroad. Notwithstanding this, I believe the measures proposed in the Bill will improve the regulatory framework in this area.

Joe McHugh (Donegal North East, Fine Gael)
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Question 155: To ask the Minister for Finance if he will take immediate action to address the competitive disadvantage which Border businesses are relative to businesses in Northern Ireland. [43432/08]

Pat Breen (Clare, Fine Gael)
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Question 157: To ask the Minister for Finance if he has plans to reduce VAT rates in view of the recent decision by the UK; his views on the serious trading problems caused to small and medium enterprises here as a result of same; his plans to address this situation; and if he will make a statement on the matter. [43494/08]

John Deasy (Waterford, Fine Gael)
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Question 163: To ask the Minister for Finance if his attention has been drawn to the fact that following the announcement in the United Kingdom pre-budget report that the rate of value added tax in the UK will be reduced to 15%, the Irish VAT rate will be 6.5% greater than in the UK and that this, combined with the fall in the value of sterling, is causing trading problems to retail outlets and other small businesses; the fiscal measures he plans to alleviate these adverse effects; and if he will make a statement on the matter. [43824/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 155, 157 and 163 together.

As part of a fiscal stimulus package, the UK Government reduced their standard VAT rate from 17.5% to 15% on a temporary basis with effect from 1 December 2008 to 31 December 2009. There are no plans to make a similar reduction in the standard VAT rate in Ireland or to reduce the rate to the UK level of 15%.

It must be recognised that our starting point is different from the UK's. We already have a low taxation economy, especially in the area of direct taxation, both income and corporation taxes, which has a direct impact on all employment in the State. This lower starting position for direct taxation makes it is more difficult to reduce taxes further.

Already we are borrowing 10% of all day to day spending on public services (before capital spending). This is unsustainable and we faced difficult choices in bringing forward corrective measures. In the recent Budget, the Government introduced a general package of revenue-raising measures to fund key public services in this regard, one measure of which was increasing the standard VAT rate by 0.5%.

Each 1 percentage point reduction in our standard VAT rate would cost around €450 million in a full year. For Ireland to reduce the standard VAT rate by 2.5 percentage points would cost around €1,125 million in a full year. For Ireland to reduce the standard VAT rate to the UK level of 15%, which would mean a reduction in the standard VAT rate of 6.5 percentage points, would cost almost €3 billion in a full year. This is equivalent to around two and a half times the amount of revenues to be raised in a full year through the new income levy.

Some of the goods and services that will be affected by the increase in the standard rate are alcohol, cigarettes, cars, petrol, electrical equipment, furniture, telecommunications, cosmetics, confectionery, soft drinks and adult clothing and footwear. The effect of the 0.5% increase in the standard rate is that goods and services that apply at this rate will increase by around0.41%. In other words, it means an increase of 8 cent on an item costing €20, or 41 cent on an item costing €100.

It should be noted that around half the value of goods and services purchased in the State are not subject to the standard VAT rate and therefore are unaffected by the recent Budget changes in Ireland and the UK. For example, all Government services, local authorities, hospitals and schools etc., are exempt from VAT. The majority of foodstuffs, oral medicines, books and children's clothes and shoes are at the zero rate of VAT. Furthermore, the 13.5% reduced rate of VAT applies to housing, electricity, gas, domestic fuels, restaurant services, and labour intensive services such as hairdressing and shoe repair.

Although the reduction in the UK standard VAT rate, will have an impact on the price differential on some goods between the North and the South, I would point out that the UK have increased excise on alcohol, cigarettes, petrol and diesel to offset the 2.5% reduction in VAT on those items. Consequently there will be no reduction in the price of those products in Northern Ireland as a result of the reduction in the UK VAT rate to 15%.

As a small open economy, many of our standard rated goods are imported, and cutting the VAT rate could benefit the economies from which we import more than our own. In other words, while, it might help the consumer, it would not be the most effective way of helping our own economy. There are other means of stimulating the economy, outside of the VAT system. The Government is providing a long term fiscal stimulus through capital investment of approximately 5% of GNP, which is twice the average in the EU. This fiscal stimulus will not only support jobs in the short term but will also add to our long term productive capacity.

Irish taxation policy has given us a significant competitive advantage over the past 15 years. We have ensured that we have had the lowest levels of direct taxation on income, therefore we have had marginally higher indirect taxation. That model of taxation has worked well for our economy and will be even more important now in leading us back to the path of economic growth. According to the latest OECD data relating to 2007, Ireland has the lowest tax wedge in the EU for single, married one-income and married two-income couples on average earnings. A low tax wedge makes it easier for employers to employ staff. After the Budget changes, we are still one of the lowest taxed economies in the EU.