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Introduction of a second Reduced VAT rate: Could they have gone further?

Wednesday, May 11, 2011

by Nick Ryan

The Minister for Finance announced yesterday in the “Jobs for growth” that a second reduced VAT rate is to be introduced with effect from 1 July 2011. Although welcomed I wonder it if more could have been done.
My first knee jerk reactions included concerns over the introduction of such a change in the middle of a VAT return reporting period and secondly, whether this reduction of 4% would be passed on by businesses to customers. Are we going to see a drop in restaurant prices and holiday lettings at the start of the high season, I am not too sure and would be concerned if the “Rip off Ireland” crusaders will have more reason to vent.
Before highlighting the proposed change my own thought is that this is a missed opportunity, reduced VAT rates are often a bone of contention within Europe and there are suggestions that there are moves afoot to iradicate these anomalies among a wider European reform of VAT. My own view is that there are more options for reduced rates that could have given a greater stimulus to a number of industries and which might provide for both job retention and job creation. I realise I am a humble VAT practitioner and should restrain myself from dipping the toe into the political pool but sometimes temptation gets the better and does not the water look inviting in this light!
I would like to see the introduction of a reduced rate for the redevelopment of old commercial/industrial buildings where a change of use is made. We saw a lot of this in the UK in docklands development where old warehouse were redeveloped into residential and hi-tech offices. In the UK the development of high end apartments were the result but, in these times I would suggest the redevelopment should be restricted to the conversion to low level accommodation and office hub units as part of a job creation and regeneration programme. I won’t mention my idea to see the empty Cork skyscraper, the Elysian, turned into a vibrant international student village and creative hub for UCC, imagine the jobs (and revenues) that might bring. Too political? There’s more.
I would also like to see the provision of a zero rate for construction works for non profit making facilities for which VAT is a burden enough, this could stimulate the improvement of facilites a number of these organisations strive for and, with it, job creation in the construction industry.
For the motor industry, I have always carried a resentment for the double taxation we experience in Ireland through VAT and VRT both being levied. Perhaps now is the opportunity to reform the taxation of vehicles with perhaps the introduction of a luxury higher rate of VAT for those high end vehicles while balancing this with a reduced rate for hybrids and low emission concept vehicles. I would welcome the removal of VRT but believe this is unlikely given the low tax takes given these times. A widening of the scrappage scheme for second hand vehicles to apply to second hand trade ins might buck the second hand market and remove some of the death traps off the road.
There is more but they can be saved for a rainy day.
Now about these changes.
The key criteria is that the reduced rate of 9% applies to certain goods and services provided within the tourist industry and will apply with effect from 1 July 2011 until 31 December 2013.
One issue businesses will need to address is the application of this rate change occurs in the middle of a VAT return period which may cause potential problems in ensuring the correct rate is applied for crossover supplies i.e for holiday lettings. and particular attention should be paid when dealing with deposit payments and invoices arising from them.
All in all the change has to be welcomed and with best intentions by all parties concerned the reduction could help in invigorating a difficult time for the tourism industry and look to generate jobs.
Any questions on this or other VAT issue then contact us at advice@thevatpractice.ie