John Lyons (Dublin North West, Labour)
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Question 106: To ask the Minister for Finance if his attention has been drawn to the current difficulties faced by licensed bus owners, specifically those who operate school transport; if he will consider designating this service as zero rate VAT as opposed to the current exempt status in view of the fact that this would put operators on a par with UK and Northern Ireland counterparts who are gradually entering the market here; failing that, if he will introduce a mechanism to replace the fuel rebate to school transport operators which was discontinued two years ago. [1138/12]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the transport of passengers and their accompanying baggage is exempt from VAT under Paragraph 14(3) Schedule 1, Value-Added Tax Consolidation Act, 2010. All domestic VAT legislation must comply with EU legislation, in particular the EU VAT Directive. The exemption for passenger transport is provided by means of Article 371 of the VAT Directive which allows Member States to continue to exempt certain supplies which were exempt in the Member State at 1 January 1978, but only in accordance with the same conditions that applied on that date. References in the VAT Directive to "exempt" include both exempt without deductibility and exempt with deductibility. Exempt with deductibility is known as "zero-rated" in Irish VAT legislation. Passenger transport was exempt (without deductibility) in Ireland on 1 January 1978. The requirement that the exemption may continue, in accordance with the conditions that applied on 1 January 1978, means it would not now be possible to apply zero-rating (exemption with deductibility) to passenger transport.

The provision of a school transport service is exempt from VAT. A person who provides a school transport service does not register for VAT and cannot recover VAT incurred on goods and services used for the purposes of the person's school transport service.

UK passenger transport operators who establish their businesses in Ireland are subject to the same VAT rules as Irish operators. They are exempt and not entitled to deductibility in respect of VAT incurred. UK passenger transport operators who are not established in the State are not entitled to any refund of VAT incurred in this State for the purposes of carrying out passenger transport activities. UK established operators may be entitled to deductibility in the UK in relation to VAT incurred in that jurisdiction but under the terms of the VAT Directive that entitlement should only apply to the extent that the VAT is incurred for the purposes of making taxable (including zero-rated) supplies in the UK.

A derogation under EU Directive 2003/96 on Energy Taxation allowed the application of a reduced rate of Mineral Oil Tax to fuel used for the purposes of certain road passenger services. That derogation has expired and was terminated by the Finance Act 2008. It would not be possible, having regard to the relevant provisions of EU law, to re-introduce a scheme of that nature for those services.

Simon Harris (Wicklow, Fine Gael)
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Question 107: To ask the Minister for Finance if he is considering measures to increase the level of VAT compliance; and if he will make a statement on the matter. [1142/12]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the overall approach to tackling compliance is to examine all the risks to the Exchequer and to make the appropriate intervention in a carefully selected case. The appropriate intervention is the one considered to be the most effective in targeting the specific risk or risks identified, and to influence the compliance behaviour of the taxpayer. By carefully selecting the cases for intervention, and carefully choosing the type of intervention, Revenue maximise the use of resources, and minimise the compliance burden on compliant taxpayers. Accordingly the focus may vary from a comprehensive look at all the taxes and duties for which a taxpayer may be liable, to a detailed look at a single tax-head, such as VAT, or to a concentration on a single issue of concern. The targeted approach is greatly supported and enhanced with appropriate technology, including Risk Evaluation Analysis and Profiling – REAP, integrated capturing of information from multiple sources, and integrated case management systems that facilitate case selection, provide invaluable information for evaluating our programmes, track the progress of cases and record the risks identified and examined.

REAP, developed by Revenue, categorises taxpayers in accordance with defined risk criteria. Risk criteria in relation to VAT feature prominently in REAP. The system allows for the screening of all tax returns against sectorial and business norms and provides a selection basis for checks or audits. This effectively means that 100% of self-assessed taxpayers will be risk assessed at least once a year. REAP contains considerable information on all self-assessed taxpayers, including those registered for VAT.

Revenue's recently published Headline Results for 2011 show that they carried out 11,066 audits, yielding €414.9m across the taxheads. They also conducted 546,499 assurance checks yielding €67.9m. In 2011 Revenue intensified its efforts to tackle the shadow economy. This included a range of compliance programmes aimed at the riskiest sectors. These were predominantly cash businesses and included sectors such as the hospitality sector and white-collar businesses. The results from these programmes are included in the overall compliance results for the year.

Revenue implements a range of compliance programmes to ensure that tax revenues, including VAT, are collected on time, bearing in mind that a shortfall in revenue or delays in collection, impact on the level and timeliness of financial resources available to the Government and adds to the level of Government borrowing and public debt interest. A delay in collection also facilitates those who by withholding tax payments and using those monies to improve cash flow, attempt to secure unfair competitive advantage.

Revenue has a strong focus on making sure that everyone complies with their tax and duty responsibilities by filing the required tax return and paying the right amount of tax on time. Revenue expects businesses, notwithstanding the difficult economic circumstances in which they are operating, to maintain a clear focus and organise their financial affairs to ensure that tax debts are paid as they fall due. The majority of businesses meet their obligations in a timely fashion.

Revenue considers that the current rates of voluntary compliance by taxpayers with their obligations to file and pay their VAT 3 Returns are quite satisfactory, particularly in relation to the higher value payment cases. The following table provides details of the compliance rates achieved for 2011 (to end November 2011):

VAT Compliance Levels to November 2011

In the table, "Large" represents businesses with an annual tax liability of greater than €500,000 and "Medium" represents businesses with an annual tax liability between €75,000 and €500,000. In this regard, annual tax liability is a weighted mixture of 'fiduciary' taxes (VAT, Employer PAYE/PRSI, RCT) and corporate/personal income tax.

Revenue's debt collection programmes operate on an integrated cross-taxhead risk focused basis. A range of collection enforcement options, including referrals to sheriffs and external solicitors, and attachment of third party debt are available in order to recover tax debts from those who refuse to pay the correct amount of tax on a timely basis. Revenue also imposes interest charges on taxpayers who consistently pay their taxes late, in order to influence their payment behaviour and move them back to timely compliance.