Written answers

Thursday, 10 February 2022

Photo of Catherine MurphyCatherine Murphy (Kildare North, Social Democrats)
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256. To ask the Minister for Finance the amount collected in VAT from gas and electricity bills in the past two years to date; and his plans to reduce VAT on energy bills. [7422/22]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of EU VAT law with which Irish VAT law must comply. The VAT Directive obliges each Member State to have a standard rate of VAT and also allows that a Member State may choose to have no more than two reduced rates of VAT, which may be no less than 5%, and which may be applied to certain goods and services: any of those listed in Annex III of the Directive. Within this framework, Ireland currently applies a standard rate of 23% and two reduced rates of 13.5% and 9%.

The EU Directive permits derogations from the general rules to allow an individual Member State to continue certain historic tax treatments, such as the application of one of their reduced rates to particular goods and services which are not included in Annex III. Ireland, in line with the VAT Directive and by way of special derogation from the general rule, maintains several “standstill” provisions and derogations that allow us to maintain reduced rates to certain supplies for historical reasons. It is on this basis that Ireland applies its 13.5% reduced rate of VAT to the supply of fuel, gas, oil, and electricity services for both domestic and commercial use. The current 13.5% VAT rate applied to energy products is a ‘parked rate’, governed by Article 118 of the VAT Directive and standstill provisions from 1991 and cannot be reduced below 12%.

Article 102 of the VAT Directive provides that, after consultation with the EU VAT Committee, a Member State may choose to apply a reduced rate (no less than 5%) to the supply of natural gas, electricity, or district heating on a temporary basis. The EU Commission recently indicated that this provision could now be used by Member States without the requirement to consult the VAT Committee in advance.

Under its existing provisions, Ireland already applies a reduced VAT rate to a broader range of energy products (including the supply of fuel, gas, oil and electricity services) than would be allowed under Article 102, which is restricted only to supplies of natural gas, electricity, district heating.

Because a Member State may only have a maximum of two reduced rates, if Ireland were to consider introducing a new reduced rate, even on a temporary basis, for the supply of natural gas, electricity and district heating as allowed under Article 102 of the Directive, then it would not be permissible to also continue both of our existing reduced rates of 9% and 13.5%. This would mean that one of those existing rates would have to be removed and the goods and services covered by those rates would have to move either to one of the other reduced rates or to the standard rate. However, there is a significant restriction on this, as the services to which the 13.5% reduced rate applies on a historic basis (i.e. the “parked” services) cannot be moved to a rate below 12%. Therefore, depending on the reduced rates chosen, this restriction could mean that the services that are currently at the ‘parked rate’, would have to move to the standard rate of 23%.

If Ireland did reduce the rate below 12%, even on a temporary basis, we would not be able to retain the derogation we currently hold that allows us to apply a reduced rate. This means that the VAT rate on electricity, gas, oil and fuel would increase to 23% when the temporary relief had expired.

I am advised by Revenue that traders are not required to identify the VAT yield generated from the supply of specific services on their VAT returns. However, a tentative estimate for the VAT collected on domestic electricity and gas supplies in 2020 and 2021, based on tax returns and other information sources available to Revenue, is shown in the following table.

VAT Collected 2020 €m VAT Collected 2021 €m
Gas 60 65
Electricity 228 290

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