Budget 2018: VAT and other indirect taxes | KPMG | IE

Budget 2018: VAT and other indirect taxes

Budget 2018: VAT and other indirect taxes

A snapshot of VAT and indirect tax changes in Budget 2018.

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A snapshot of VAT and indirect tax changes in Budget 2018.

VAT rates

The minister has confirmed the continuation of the 9% reduced VAT rate which 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 rate was originally introduced in 2011 for a three year period and was extended indefinitely in Budget 2014 as part of the Government’s Jobs Initiative for Tourism. The minister noted that despite the current strength of the Irish tourism sector particularly in Dublin, the case for the retention of the measure in the national interest remains.

The 23% and 13.5% VAT rates remain unchanged. However, the minister announced the VAT rate applicable to sunbed services will increase from the reduced 13.5% rate of VAT to the standard 23% rate of VAT. There are no changes to the flat rate farmer addition which remains at 5.4%.

Charities VAT compensation scheme

The minister announced plans to introduce a scheme to partially compensate charities for VAT suffered on their operating costs. This follows on from a report published in October 2015 by the VAT on Charities Working Group in respect of reducing the VAT burden for charities.

The minister announced that the compensation scheme will come into effect from 1 January 2018 with VAT refunds payable one year in arrears. As a result, in 2019 charities will be entitled to seek compensation for some element of the non-deductible VAT incurred on their costs in 2018.

An accompanying paper released by the Department of Finance provides an overview of how the scheme will operate. The paper outlines that charities will be entitled to a refund of a proportion of VAT suffered on their costs based on the level of non-public funding they receive. For example, where a charity’s gross income for 2018 comprises 70% privately sourced income including fundraising, subscriptions and donations, the charity may claim up to 70% of the VAT suffered on its costs for the year. A refund will not be available on private, non-charity related expenses or on VAT incurred which is otherwise reclaimable from Revenue.

A fund of €5 million will be available to the scheme in 2019. Where the total amount of claims submitted to Revenue exceed this capped amount, charities will be paid on a pro-rata basis. For example, where the total value of all claims received in 2019 in respect of 2018 amounts to €10 million, each qualifying charity will receive 50% of their claim.

A number of conditions will apply including the requirement to be registered with the Charities Regulator, and have a tax clearance certificate. For administrative purposes, claims valued below €500 will not qualify. The full details will become clearer when legislation to implement the scheme is published.

The report of the VAT on Charities Working Group estimated the annual VAT burden for charities at €77.4 million (or 4.5%) of total expenditure. The capping of the scheme at €5 million per annum will limit the quantum of VAT refund each charity can expect to receive but the scheme can be welcomed as a step in the right direction towards reducing the VAT burden for the charitable sector.

Excise duties

The excise duty on a packet of 20 cigarettes is being increased by 50 cent (including VAT) with a pro-rata increase on other tobacco products and an additional 25 cent on ‘roll your own’ tobacco. These measures take 10 TaxingTimes Budget 2018 effect from midnight and are estimated to generate an additional €64 million in revenue during 2018.

There are no increases in excise on alcohol, petrol or diesel or in betting duty.

The minister has requested that a review of carbon tax be carried out to assess the role of the tax in driving changes to behaviour in households and business. It is intended that proposals will be brought forward in Budget 2019.

Vehicle Registration Tax (VRT)

There were no further changes in the Budget in relation to the VRT reliefs on the registration of hybrid and electric vehicles, which were extended in Budget 2017. These reliefs are currently scheduled to continue to the end of 2018 in respect of hybrid vehicles and the end of 2021 in respect of electric vehicles. The reliefs are up to a maximum of €5,000 for electric vehicles and lower amounts for hybrid vehicles.

The minister announced plans to bring forward proposals for discussion in early 2018 in relation to the VRT treatment of leased vehicles following a recent decision of the Court of Justice of the European Union (CJEU). That decision held that Ireland was in breach of EU law by imposing the full amount of VRT on vehicles temporarily brought into the State for lease or hire. It was held by the CJEU that only a proportionate amount of VRT should apply to reflect the temporary use of such vehicles in Ireland.

Sugar tax

Following an announcement in Budget 2017 and a public consultation process, the minister confirmed plans to introduce a tax on non-alcoholic sugarsweetened drinks (a ‘sugar tax’), with effect from April 2018, subject to EU State Aid approval.

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, certain US states and Mexico, with South Africa also proposing to implementation a sugar tax this year.

The rate of sugar tax will be 30 cent per litre on drinks with 8 grams or more of sugar per 100 millilitres, and 20 cent per litre on drinks with a sugar content of 5 grams or more but less than 8 grams per 100 millilitres. The tax will exclude sugar sweetened drinks with less than 5 grams of sugar per 100 millilitres, pure fruit juices that do not contain added sugar (however if sugar is added to these drinks the entire sugar content will become liable to the tax) and dairy products. It is intended that the tax will become liable on the first supply in Ireland, such that it will be payable by importers and producers of sugar based drinks falling within the designated thresholds.

Ireland’s sugar tax rates and the introduction of the tax are to be aligned with the proposed introduction of a sugar tax regime in the UK (also due to be introduced in April 2018). This is intended to minimise the potential for leakages in exchequer revenue arising from illegal and cross-border sales, as was experienced by Denmark resulting in the repeal of its sugar tax regime in 2014.

The exact details will become clearer when legislation to implement the tax is published but the new tax would add approximately 10c to a 330ml can of soft drink with sugar content levels in the higher bracket. The tax is initially estimated to generate yields of €30 million in 2018 and €40 million for a full tax year thereafter.

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