Andrew Doyle (Wicklow, Fine Gael)
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Question 225: To ask the Minister for Transport the reason for retaining the travel agents bond at 4%; if he has reviewed the impact on the future economic viability of travel agents of this high rate for a bond; his views on reducing the bond to 2% in view of the changing level of competition within the sector due to low cost airlines; his further views on the impact of applying VAT on the travel agency sector and the unfair competition in the travel sector if the travel agency is singled out alone for VAT payments; and if he will make a statement on the matter. [21350/09]

Noel Dempsey (Meath West, Fianna Fail)
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Statutory responsibility for regulation of the travel trade rests with the Commission for Aviation Regulation.

As the existing legislative framework for the regulation of the travel trade has been in existence since 1982, I asked the Commission for Aviation Regulation to undertake a comprehensive review of the travel trade legislation. The purpose of the review was to assess the operation of the current regulatory arrangements and to recommend any reforms that may be warranted.

Following an extensive consultation process, the Commission submitted their report to me on 30 December 2008 which I have published on my Department's website www.transport.ie.

I have consulted with my colleague, the Tánaiste and Minister for Enterprise Trade and Employment, on the report's findings from the general consumer protection policy perspective and I expect to finalise my consideration of the report shortly.

In relation to VAT, I am advised that the Finance (No. 2) Act 2008 introduced a new VAT margin scheme from 1 January 2010 for tour operators. I understand that the requirement to introduce a margin scheme arose from a decision of the Revenue Appeal Commissioner in 2007 and is the system applied in most EU Member States. VAT will be chargeable only on the profit margin realised by tour operators and entitlement to VAT deduction will be allowed on overheads.

As a consequence to this change, it is also provided that travel agents be made subject to VAT in order to avoid tax planning on the part of tour operators who could arrange to have some or all of their economic activity classified as exempt travel agent services. However, travel agents will only be liable to pay VAT on their commission and, as in the case of tour operators, they will also have the right to deduct VAT in respect of their overheads.

With regard to unfair competition, as already stated, both tour operators and travel agents are being made subject to VAT. With regard to airlines who supply air transport, these continue to be exempt from VAT under the general VAT exemption in respect of the transport of passengers, under paragraph (xiv) of the First Schedule to the VAT Act 1972. It is not considered that airlines supplying transport offer the same service as that of a travel agency.