Neasa Hourigan (Dublin Central, Green Party)
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188. To ask the Minister for Finance whether he has considered using the tax system to incentivise the repair and restoration of buildings over their demolition by adjusting the VAT rate applied to demolition projects to 23% while keeping repair and renovation activities at the reduced rate of 13.5%; and if he will make a statement on the matter. [41372/24]

Neasa Hourigan (Dublin Central, Green Party)
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203. To ask the Minister for Finance his plans to adjust the VAT rate applied to demolition projects, which is currently set at a rate of 13.5%; and if he will make a statement on the matter. [41371/24]

Jack Chambers (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 188 and 203 together.

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, unless they fall within categories of goods and services specified in Annex III of the EU VAT Directive, in respect of which Member States may apply a lower rate of VAT. The Directive also allows for a Member State’s historic VAT treatment to be maintained under certain strict conditions.

In accordance with these various provisions in EU law, Ireland applies its reduced VAT rate, currently 13.5% to the repair, restoration, and demolition of residential, public, and commercial buildings.

The Deputy suggests that, as a way of incentivising projects which repair and restore buildings rather than demolish them, we should remove demolition services from the scope of the reduced VAT rate, so that demolition is subject to VAT at the standard rate, which is currently 23%. However, it is unlikely that such a measure would achieve the outcome that the Deputy is seeking.

This is because a fundamental feature of the VAT system is that businesses are generally entitled to full recovery of any VAT incurred in the course of their business, regardless of the rate of VAT on those inputs. It means, for example, that a developer who purchases demolition services is generally entitled to fully recover the VAT on those services, provided the development firm’s supplies to its customers are chargeable to VAT. In such a situation, any change in the VAT rate that the developer is charged for demolition services will not affect the net cost to the developer of the whole project, nor would it necessarily have an impact on the amount the development firm charges its own customer.

As a further general point, any proposal for Ireland to adopt different rates for different types of construction services would represent a tax policy change that would need to be very carefully assessed. It would also present significant operational implications including increased compliance burden for business and the challenges of avoidance risks.

Finally, because Ireland’s application of the reduced rate across construction services is complicated – partly underpinned by a historic derogation, and partly by the general provisions of Annex III – there are some associated restrictions on future policy-making that would need to be examined and understood before changing current arrangements. For example, in the event that Ireland were to remove demolition services generally from the reduced rate, then it would never be possible at a later date to reverse that decision as regards demolition in the commercial property sector.