Leo Varadkar (Dublin West, Fine Gael)
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Question 148: To ask the Minister for Finance his views on the introduction of a scrappage scheme for motor vehicles; and if he will make a statement on the matter. [12933/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am conscious of the decline in new car sales in Ireland and internationally due to the contraction in economic activity. I and officials in my Department have met with representatives of the motor industry, where they have put forward various proposals, including the introduction of a car scrappage scheme. Any such proposal will be considered in the context of the forthcoming Supplementary Budget.

Leo Varadkar (Dublin West, Fine Gael)
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Question 149: To ask the Minister for Finance if he will make amendments to the VAT system to ensure that VAT is paid by car dealers on the amount for which a used car is sold not purchased by the dealer; and if he will make a statement on the matter. [12934/09]

Leo Varadkar (Dublin West, Fine Gael)
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Question 150: To ask the Minister for Finance if he will introduce a margin system in respect of VAT for used car dealerships similar to that in the United Kingdom; and if he will make a statement on the matter. [12935/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I propose to answer Questions Nos. 149 and 150 together.

I am conscious of the decline in the motor industry in Ireland and internationally due to the contraction in economic activity. I and my officials have had meetings with representatives of the motor industry on the matter. In the case of second-hand cars a special VAT scheme is in place in Ireland. This special scheme was introduced in 1994, following strong representations from the motor industry, as a derogation under the VAT Directive. The scheme contrasts with the Margin Scheme, which operates in most other Member States.

The special scheme allows motor dealers, at the time of purchase, to claim credit for residual input VAT which is considered to be included in the cost of acquiring a second-hand car from a customer. When the car is subsequently resold, the VAT is chargeable on the full sale price of the car or on the original purchase price paid by the dealer, whichever is the higher. This is necessary because the dealer has already been granted a credit in relation to the residual input VAT incurred. The special scheme allows dealers the maximum benefit by allowing an immediate deduction of residual VAT at the point of purchase. The VAT credit already allowed on second-hand cars must, despite the industry's view, be seen for what it is, i.e. money advanced to dealers by the Exchequer which they are only repaying when they resell the second-hand cars.

Under the Margin Scheme, garages and dealers would account for VAT on their profit margin only, i.e. on the difference between the cost of acquiring and selling the second-hand cars involved. There would also be no entitlement to a deduction on the acquisition of the car and consequently the question of a VAT clawback would not arise. Although with the changing economic circumstances dealers have found themselves selling traded-in second-hand cars at a loss, which is increasingly giving rise to clawbacks of VAT situations for dealers, it is not possible to write-off the VAT credit already allowed to the dealers on second-hand cars. In this context the Revenue Commissioners have however granted concessionary treatment which allows dealers to postpone payment in respect of the clawbacks over the past number of months until 19 May 2009.

The motor industry has made calls for the introduction of a Margin Scheme for second-hand cars in conjunction with the writing-off of the outstanding VAT credits already provided to dealers in respect of second-hand cars. I am not opposed to the introduction of such a Margin Scheme, but not on the basis that the outstanding VAT credit already provided to dealers in relation to their existing stock of second-hand cars would be written-off in full.