VAT and other indirect taxes

VAT and other indirect taxes

VAT rates, flat rate for farmers, property holding funds, excise duties, climate change, "old reliables", micro-breweries and sugar tax.

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VAT

VAT rates

The minister confirmed the continuation of the 9% reduced rate of VAT which was first introduced in 2011 to promote the Irish tourism sector and was extended indefinitely in 2014. The rate applies to a range of goods and services principally in the tourism and hospitality sector, including restaurant and catering services, hotel accommodation, newspapers and admissions to cinemas, museums and other attractions. The minister noted that although the current economic rationale for retaining the rate may not be as strong as when it was first introduced, its retention will act as a buffer for the sector against the weakness in sterling and increased costs of holidaying in Ireland for British tourists.

There are no changes to the scope of the goods and services falling within the 0% rate, 13.5% reduced rate or 23% standard rate of VAT. There had been pre-Budget speculation of potential changes to the VAT rates in other sectors, most notably a potential reduction in VAT on the supply of newly built residential accommodation, but these have not come to pass.

Flat Rate Addition for farmers

The flat rate addition payable to farmers who are not VAT registered will increase from 5.2% to 5.4% with effect from 1 January 2017. The flat rate scheme compensates unregistered farmers for irrecoverable VAT on their purchases.

Property Holding Funds

The minister’s speech referred to his previously announced intention to amend the corporation tax regime applying to ‘Section 110 companies’ and other funds engaged in activities relating to Irish property. While any such corporation tax amendments should not directly impact on the VAT exemption for the management of qualifying funds including Section 110 companies, the VAT implications should be considered in respect of any reorganisation or alternative structuring of current or future property transactions.

Excise Duties

Combatting Climate Change

A number of the minister’s proposals in the area of excise duties are intended to incentivise lower carbon alternatives to traditional fuels.

These include:

  • An extension to the time period of the existing relief from Vehicle Registration Tax (VRT) on hybrid vehicles and electric vehicles up to 31 December 2018 and 2021 respectively 
  • A new measure (aimed at reducing the dependence of larger vehicles on diesel) to tax natural gas used as a vehicle fuel at the EU minimum rate of 8%, for a period of eight years
  • A new relief from carbon tax for solid fuels that include a biomass element 
  • A full relief from carbon tax on fuel inputs to create high efficiency electricity in combined heat and power plants.

‘The Old Reliables’ and Microbreweries

The excise duty on a packet of 20 cigarettes will increase by 50 cent (including VAT) with a pro-rata increase on other tobacco products with effect from midnight of 11 October 2016 (i.e. from Budget night). This measure is estimated to generate an additional €65 million in revenue during 2017.

There are no changes to excise duty on alcohol products (except for the microbreweries relief referred to below), petrol or diesel.

The current 50% relief to the standard rate of Alcohol Products Tax on beers made in microbreweries which produce not more than 30,000 hectolitres per annum is being extended. The relief will apply to microbreweries which produce not more than 40,000 hectolitres annually.

Sugar Tax

The minister announced plans to introduce a tax on sugar-sweetened drinks (a ‘sugar tax’) in 2018, following a public consultation in the coming months.

The proposal follows a global trend towards taxing drinks with a high sugar content as a means of tackling obesity, diabetes and other health risks. Sugar tax regimes are already in place in a number of jurisdictions, including France, Hungary, Norway, Finland, certain US states and Mexico. Interestingly, Denmark had a sugar tax regime for many years but repealed it in 2014 due to leakages in exchequer revenue arising from illegal and crossborder sales.

Perhaps reflecting the Danish experience, and given the integrated production and supply chains between Ireland and the UK, our measures and timing are to be aligned with the proposed UK sugar tax regime, with a suggested implementation date of April 2018. Significant details remain to be determined, including the rate and basis of computation and administration.

The minister launched a public consultation on the practical implementation of the tax, based on Department of Health proposals, which will remain open until 3 January 2017. The proposals are to apply the sugar tax to water-based and juice-based drinks which have an added sugar content of 5 grams/100ml and above. This threshold is intended to exclude the following from the scope of tax: pure fruit juices, low sugar soft drinks (e.g. diet drinks) and all dairy-based sugar-sweetened drinks. The proposals also apply only to pre-packaged drinks.

An equivalent UK consultation regarding drinks with added sugar (but excluding pure fruit juices and milk-based drinks) has been ongoing since August and closes on 13 October 2016. The UK rate of sugar tax is proposed to be £0.18 per litre where the sugar content is above 5 grams/100ml and £0.24 per litre where the added sugar content is above 8 grams/100ml. We can expect Ireland to closely follow the outcome of the UK consultation, and to take account of the implementation difficulties experienced elsewhere, including potential EU legal challenges.

Taxing Times: Budget 2017 & Current Tax Developments

Taxing Times: Budget 2017 & Current Tax Developments

Budget 2017 is the second budget in a row where the choices have been about how to distribute benefits; read our professional tax analysis.

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