Noel Grealish (Galway West, Independent)
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397. To ask the Minister for Finance if his Department has considered revising the existing policy to allow for all category C vehicles to be exempt from value added tax with particular references to buses suitable for carrying between 12 to 16 persons; and if he will make a statement on the matter. [30182/22]

Paschal 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 EU VAT law, with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, currently 23% in Ireland, unless they fall within categories of goods and services specified in the Directive, in respect of which Member States may apply a lower rate or exemption from VAT.

The Directive allows for historic VAT treatment to be maintained under certain conditions and Ireland has retained the application of VAT exemption to the transport of passengers and their accompanying baggage. This means that under Ireland’s VAT rules, the supplier of passenger transport services does not register for VAT, does not charge VAT on the supply of their services and, consequently, has no VAT recovery entitlement on their input costs. In accordance with the EU rules, Ireland may continue to apply this existing, historic VAT exemption on the supply of domestic passenger transport but, for as long as the exemption remains, the conditions under which the exemption was granted cannot be changed. In fact, the introduction of a new entitlement to VAT recovery for the passenger transport sector could only be done if Ireland were to decide to end its historic exemption for the sector, and bring passenger transport services into the VAT net; this would then require suppliers to register for VAT and charge VAT on their passenger fares.

A VAT-registered trader is generally entitled to deduct VAT charged on the purchase or hire of a motor vehicle for use in their business if the vehicle comes within the definitions of Category B or Category C vehicles for the purposes of Vehicle Registration Tax (VRT). If such a vehicle is used exclusively for business purposes, the VAT is deductible in the normal way. Vehicles within VRT Categories B & C, such as vans and lorries are generally deductible for VAT, and these are often referred to as commercial vehicles for VAT purposes. However, buses or minibuses suitable for carrying between 12 and 16 persons (including the driver) are not generally deductible for VAT, although they come within Category C, as they are normally used for the VAT exempt activity of passenger transport.

Ireland has also maintained a relieving provision, the Value Added Tax (Refund of Tax) (Touring Coaches) Order of 2012, which provides for a refund of VAT on the cost of acquiring “qualifying vehicles” used for the carriage of tourists under contracts for group transport. However, it should be noted that extending the scope of the Order while maintaining VAT exemption for passenger transport would be contrary to the EU VAT Directive.