Noel Ahern (Dublin North West, Fianna Fail)
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Question 175: To ask the Minister for Finance the approved VAT ranges that are allowed by the EU; if it is open to a member state to only use one VAT rate if they so decide; the VAT take from each of the rates in 2009; his views on the suggestion that Ireland should follow the UK and reduce our normal rate to 15% and increase the lower rate to 15%; if such an increase would substitute for the reduction; the loss to the Revenue Commissioners if the above change are made here; and if he will make a statement on the matter. [28755/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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EU VAT law requires Member States to apply a single standard rate of VAT of not lower than 15%, and there is also political agreement that the standard rate applying in each Member State does not exceed 25%. Member States may also apply up to two reduced rates of VAT of no less than 5% and not more than 15% on those goods and services listed in Annex III of the EU VAT Directive. In addition, Member States may apply a reduced rate or a zero rate of VAT to goods and services not listed in Annex III in certain circumstances where a reduced or zero rate applied to those on 1 January 1991.

It is open to Member States to use a single rate of VAT, so long as it falls within the rules for the standard rate of VAT as outlined above.

I am informed by the Revenue Commissioners that the yield from the reduced and standard rates of VAT of 13.5% and 21.5% is estimated at €3,690 million and €7,730 million respectively in 2009.

Consolidating our existing reduced and standard rates of VAT into a single rate of 15% may simplify the VAT system and increase our competitiveness with the UK, however such a measure would be far too costly. It is estimated that while an increase from 13.5% to 15% in the reduced rate of VAT would yield an additional €410 million in a full year, however a decrease in the standard rate of VAT from 21.5% to 15% would cost €2,340 million in a full year; resulting in an overall loss to the Exchequer of around €1,930 million in a full year.

It should also be noted that in Ireland we apply the reduced VAT rate to a relatively large number of goods and services, and therefore consolidating our VAT rates to 15%, would result in a VAT increase for almost 40% of goods and services. The services involved include labour intensive services, residential housing, commercial construction and electricity, gas and domestic fuels. These increases would fall disproportionately on the less well off leading to significant public opposition to such a change.

Many of the items charged at 13.5% in Ireland are at the parked rate of VAT which applies in the case of such goods and services that are not included in Annex III of the EU VAT Directive but which were charged at a reduced rate on 1 January 1991. Such items include fuel used for heat or light and certain housing and construction. If the VAT rates are re-aligned into a new single standard rate, it would not be possible in the future under EU VAT law to revert these parked items back to the reduced rate.