Vol. 438 No. 1
14 Mr. Yates asked the Minister for Finance if his attention has been drawn to the growth in second-hand car imports by 72 per cent in 1993 over 1992; if his attention has been drawn to the fact that the Government is not receiving VAT receipts on these purchases which are made abroad; and the steps, if any, he intends to take to rectify the situation.
I am aware that there has been a substantial increase over the last year in the number of second-hand cars being imported into the State.
The charging of VAT on trade between member states is governed throughout the European Union by harmonised rules introduced as part of the process of the completion of the Internal Market and the abolition of fiscal frontiers on 1 January 1993. The rules which apply in Ireland must be consistent with this framework.
In accordance with Internal Market rules, VAT is not paid in the State on second-hand cars purchased in other member states by private individuals. In such cases, VAT is charged in the member state where the purchase takes place, but only if the purchase is from a motor trader. In the case of second-hand cars acquired by Irish dealers in other member states and resold here, the dealers are liable to Irish VAT at the standard rate on the full selling price. However, the traders are allowed a deduction, that is, a notional input credit, in respect of the relevant VAT of the other member state. In effect, the Irish dealer pays Irish VAT at the standard rate on his profit margin from the transaction and at the difference between the Irish standard rate and the standard rate of the other member state on the VATexclusive price paid for the car in the other member state. In addition, I should mention that VAT is payable in the State in respect of all cars imported from outside the European Union. Of course, all such cars are subject to vehicle registration tax.
I should like to point out too in this context that, as a result of my recent budget initiative, the VRT rates on motor cars were reduced from 31.8 per cent to 29.25 on cars over 2012 cc and from 25.75 per cent to 23.2 per cent on all other cars, with effect from midnight on budget night. This should enable a reduction of 3.3 per cent and 3.6 per cent, respectively, in the retail price of a new car and will be of considerable assistance to the motor industry. The industry will also benefit from the substantial increase from £10,000 to £13,000 in the ceiling on capital allowances for new cars and the arrangements in that area planned for future years announced in the budget.
I am confident that, reflecting both the favourable interest rate climate and the positive impact of my budget measures, new car sales will expand in 1994. Already there are signs that sales are performing strongly this year.
Is the Minister aware that over 30,000 second-hand cars were imported last year? What is happening is that in clubs and pubs right across this country people are being offered cheap cars by people going to Northern Ireland, buying them there, paying the VAT there, bringing them here and just having to pay the VRT to get the Irish number plates. If one buys a new car here the Exchequer gets the VRT and the VAT but in this context we are losing the VAT. Would the Minister not agree, therefore, that his proposals for adjustment of VRT were too modest and will not give the type of stimulus that is needed for the extra sale of new cars here as opposed to being a dumping ground for second-hand scrap cars, particularly from Northern Ireland?
The January figure for car sales in excess of 13,000 compared with 9,000 in the same period last year. The Deputy's figures are correct in that approximately 33,000 cars were imported last year as "used imports". It is estimated that new car sales in Europe decreased by at least two million in 1993 compared with 1992. Cars are being moved from one member state to another much more freely since the fiscal frontiers were removed. A large proportion of cars imported to Ireland are five and six years old, with quite a low value. Such imports are not displacing new car sales because we are talking about cars valued in the region of £3,000 to £4,000 rather than bigger and more expensive ones. Nevertheless, I suspect that big cars, approximately two years old, are also being imported but that fact is not highlighted.
The information I received from the Revenue Commissioners is that the position is not as described by the Deputy, that all cars brought in here for sale attract the vehicle registration tax normally paid by the unregistered dealers and private individuals within one working day of the arrival of the car here. If a person is bringing in a significant number of cars, his or her activities would be quickly noticed by Revenue. The VAT rate here is 21 per cent compared with 17.5 per cent in the UK; we have some yield from the VAT position. Car dealers who import second-hand cars from other EU states for resale here are liable for VAT. For example, if an Irish dealer acquires a second-hand car from a UK or a Northern Ireland dealer, for a private individual the Irish dealer or individual is entitled to recover 17.5 per cent of the cost by taking the notional import credit through the VAT return. He would be liable to Irish VAT on the full selling price of the car. In effect, that person pays Irish VAT at the standard rate of 21 per cent on his profit margin from the transaction and at 3.5 per cent — the difference between the Irish and UK VAT rates — on the VAT exclusive price. We can do nothing about the question of full payment in a free market but a partial VAT rate applies. Many other matters arise in that regard, dut I do not believe it is necessary to go into those details now.
Deputy Yates rose.
There are two remaining priority questions which I am most anxious to dispose of within the time limit laid down. A brief question from Deputy Yates.
It is good to see you back, Sir.
I appreciate that.
Not only garage proprietors are bringing in second-hand cars, people are naming other individuals. In other words, a person could bring in a car by giving the Minister's name.
Was it not the case that in the spirit of Maastricht we would move towards harmonisation of car prices? I understand we are the only country in Europe which imposes a vehicle registration tax, in other countries only VAT is paid. The total tax value here is more than 60 per cent compared with 17 per cent in the UK. Will the Minister progressively move towards abolishing the vehicle registration tax so that motorists here can avail of a price comparable to that enjoyed by other European consumers?
As the Deputy stated, budgetary considerations change each year and this year we were able to reduce the price of an average family car by approximately £400 or £500. We did not break the spirit of the European fiscal frontier regulations or get a special derogation in that regard. We are in order in introducing vehicle registration tax within European rules. The same is done in many other countries for various products. From the point of view of the State, the income from the vehicle and motoring taxation is in excess of £1 billion.
