Paschal Donohoe (Dublin Central, Fine Gael)
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Question 148: To ask the Minister for Finance the position regarding the universal social charge (details supplied); and if he will make a statement on the matter. [20052/11]

Michael Noonan (Limerick City, Fine Gael)
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The Universal Social Charge (USC) has replaced the Income Levy and the Health Levy. The USC is designed to apply across income levels in a smoother progression. It was a necessary measure to widen the tax base, remove poverty traps and raise revenue to reduce the budget deficit. It is a more sustainable charge than those it replaced. It should be noted that there are certain exemptions and reliefs from the USC. Persons in receipt of a payment from the Department of Social Protection such as the widowed person's contributory State pension are exempt from the USC. In addition, there are also concessions for medical card holders and persons aged 70 or over who are not liable to the top rate of charge.

It is not possible to properly analyse and compare individual cases without knowing the details of the income and circumstances of the individuals being compared. However, it is true to say that after Budget 2011 a widowed person will still pay less tax than a single individual on the same income. As the Deputy is aware, there is a commitment in the Programme for Government to carry out a review of the USC. This review has already commenced. It is anticipated that the review will be completed in time for Budget 2012. The review will examine a broad range of issues which will include the USC treatment of widows/ widowers.

Terence Flanagan (Dublin North East, Fine Gael)
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Question 149: To ask the Minister for Finance the position regarding the VAT reduction rate in respect of a person (details supplied); and if he will make a statement on the matter. [20062/11]

Michael Noonan (Limerick City, Fine Gael)
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VAT is charged on the supply of goods and services, and the rate applying is subject to the requirements of EU VAT law with which Irish VAT law must comply. While many tourist related services were made subject to a new temporary lower reduced VAT rate of 9% from 1 July, it is not possible to extend this treatment to all goods and services that had been subject to the 13.5% rate.

While hairdressing services apply at the new temporary 9% rate, services consisting of the care of the human body, including beauty salons, will remain subject to the 13.5% rate. This arises from the fact that many of goods and services to which Ireland applies a reduced rate of VAT, including services related to care of the human body, have their basis under an EU derogation that provides that as we applied a reduced rate to these items on 1 January 1991, we are entitled to continue applying that reduced rate to those items. However, this continuation of reduced rate application is conditional on the rate being no less than 12%. These are known as 'parked' items, and are provided for under Article 118 of the EU VAT Directive. As the services provided by beauty salons are part of these parked items, it is not possible for Ireland to apply the rate of 9% to them.

It is for this reason that the Finance (No. 2) Act 2011 introduced a 9% VAT rate in respect of tourist activities such as restaurant and hotel accommodation services, while other tourist activities such as tour guide services and the short-term hire of cars, boat, caravans and mobile homes remain liable to VAT at the 13.5%. However, it should be noted that in the majority of EU Member States services consisting of the care of the human body apply at their standard VAT rate of up to 25% in some cases, compared to 13.5% in Ireland.