Róisín Shortall (Dublin North West, Independent)
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218. To ask the Minister for Finance if he will outline the basis on which the applicable VAT rate for a given product or service is determined; if he will undertake a comprehensive review of the different rates of VAT that are applied to different product types with a view, on a cost neutral basis, to creating more affordable rates for basic goods and services and higher rates for luxury goods. [38026/13]

Michael Noonan (Limerick City, Fine Gael)
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I am advised by the Revenue Commissioners that the VAT rating of goods and services is provided for in the Value Added Tax Consolidation Act 2010 which specifies the rates of VAT that apply to different categories of goods and services. These matters are governed by the EU VAT Directive, which generally provides that supplies of goods and services should be subject to VAT at the standard rate, which in Ireland is 23%. The VAT Directive is very restrictive in relation to the application of lower rates of VAT, where Member States may apply up to two reduced rates of VAT of between 5% and 15% but only to specific goods and services set out in Annex III of that Directive. In addition, Member States may retain a zero rate of VAT, or a rate of VAT less than 5%, on goods and services where that rate applied to those goods and services on 1 January 1991. However, no new activity can apply at those rates, and once removed activity cannot be reinstated at those rates. The VAT Directive also allows the continuation of a reduced rate on goods and services not listed in Annex III, where they carried a reduced rate on 1 January 1991. However, the Directive requires that a reduced rate of at least 12% apply to those goods and services. In general, Ireland applies a reduced VAT rate and zero rate of VAT to a far greater range of goods and services than any other EU Member States. In this regard, Ireland already applies the zero rate of VAT to basic foods, and the reduced VAT rate of 13.5% applies to most services, while tourist related services currently apply at the 9% rate. In addition, the 23% standard rate applies to most luxury goods, including cars, petrol, diesel, alcohol, electrical equipment, etc. In this context, while there is generally scope to apply a higher rate of VAT to many goods and services, there is very little scope to do the reverse. With regard to undertaking a comprehensive review of the different rates of VAT that are applied to different product types, the VAT system and its structure are reviewed on an annual basis in the lead-up to the budget.