Dáil Éireann debate -
Thursday, 25 Mar 1993

Vol. 428 No. 3

Written Answers. - Value Added Tax.

Noel Ahern

Question:

48 Mr. N. Ahern asked the Minister for Finance if the 5 per cent increase in VAT on clothing and footwear is the result of the introduction of the Single Market on 1 January 1993, the resulting abolition of payment of VAT at the point of entry and the resulting budgetary problems; and if so, if it will be reduced in 1994 when VAT income for the year will return to normal.

Minister for Finance (Mr. B. Ahern)

The budget increase in the rate of VAT on clothing and footwear was not related to the abolition of VAT at the point of entry. I shall be bringing forward proposals in the Finance Bill to offset the cash-flow loss arising in that regard.

As I indicated in my Financial Statement on 24 February, agreements reached at European Community level permit the application of only one VAT rate in excess of an agreed standard rate minimum level of 15 per cent. Accordingly, it was not possible to retain both the 16 and 21 per cent rates. While the EC Directive requires that all the items at the former 16 per cent rate must ultimately become subject to the standard rate, I was able to avail of the flexibility allowed by the EC agreement to move certain labour intensive services temporarily to the reduced rate of 12.5 per cent in the interests of employment. However, budgetary circumstances ruled out a more widespread application of a low rate to other goods and services, including adult clothing and footwear, which were previously at the 16 per cent rate, or a reduction of the standard rate. Accordingly, I decided to move these items to the existing standard rate with effect from 1 March 1993.