Leo Varadkar (Dublin West, Fine Gael)
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Question 125: To ask the Minister for Finance when he intends to apply VAT to services provided by local authorities such as refuse charges; the amount he anticipates he will raise from this in a full year; if he will consider using the money to reduce local authority rates charges to business; and if he will make a statement on the matter. [21423/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Services supplied by State bodies, including local authorities, will become subject to VAT from 1 July 2010. This is as a consequence of the European Court of Justice case C-544/07 against Ireland on 16 July 2009, which ruled that Ireland should amend its VAT legislation to provide that State and public bodies are in general subject to VAT. This case goes back to 2004 when infringement proceedings were taken by the European Commission against Ireland. Given the time that has passed since the Court's Judgement, and since the commencement of the case, it is imperative that the VAT implementation takes place as soon as possible. 1 July 2010 was chosen as the date of implementation of VAT in this regard in order to allow time to process the relevant legislation and for State and public bodies, including local authorities, to prepare for the change to their administrative systems.

With regard to the Exchequer revenue implications of the application of VAT to the activities of public bodies, including local authorities, this will be difficult to estimate, even after the tax has been applied for some time. It is considered that there should be some positive revenue yield for the Exchequer, but, it will be far lower than might be initially envisioned. While yield will accrue from the VAT being applied to services that were up to now exempt, any VAT charged to business customers will be reclaimed by them in the normal manner resulting in a Revenue neutral position in so far as those customers are concerned. Public bodies will now be in a position to claim VAT input credit in respect of VAT paid on the inputs they use in providing their services, which they can not do at present. Consequently, any Exchequer gain from VAT being charged by public bodies will be reduced by VAT on input claims by public bodies and also by the business recipients of public body services.

With regard to the suggestion that VAT revenues generated from local authorities be ring-fenced in order to reduce local authority rates that apply to business, it is the general practice not to ring-fence revenues for specific purposes but rather take an overall view on priorities in the context of expenditure and budgetary decisions which, of course, are dependent on Exchequer revenues.