Dáil Éireann debate -
Thursday, 14 Apr 1994

Vol. 441 No. 3

Adjournment Debate. - VAT Refunds for Non-EU Visitors.

Mr. Deenihan

I thank the Chair for allowing me raise this matter. The European Commission is considering a proposal which will mean non-EU visitors to Ireland who spend less than £142 will not be entitled to claim a VAT refund. If, as proposed, the European Union introduce this legislation it could have major implications for our tourism industry. The majority of tourists in Ireland, 70 per cent, spend less than £142 on shopping. According to the Central Statistics Office and Bord Fáilte figures, approximately £45 million was spent on shopping in Ireland in 1992 by non-EU tourists. This new proposal could mean that up to £31 million would be lost to the economy.

The lack of incentive to shop and receive a VAT refund will reduce the amount of spending in retail outlets. Consequently less revenue will be earned in these outlets. The net effect will be that retail outlets will close down, particularly those whose main business is in tourism. Retail staff will join the dole queues, there will be a reduction in the amount of PAYE and PRSI returned to the State by retail employers and there will be a downturn in the tourism industry.

If this proposal is introduced tourists will only receive a refund if they spend over £142. Shopping tours to Ireland will become unattractive and will consequently decline. The obvious outcome will be a decline in business which will effect, particularly in the off season, not only retail outlets but tour operators, hoteliers and their staff.

Ireland as a tourism country will be at a disadvantage as the level of spending by tourists, which is normally less than in other EU countries, will decrease. This will have adverse spin-off effects on other industries and on the economy. I am concerned about the implications of this proposal, if implemented, for the 100 employees of FEXCO, the foreign exchange company based in Killorglin. This company processes over 20,000 VAT refunds from the UK authorities for non-EU tourists. If implemented this proposal will endanger those jobs.

The proposals will be presented to the committee on economic and monetary affairs of the European Parliament on Monday, 18 April in Strasbourg. It will be examined by the economic and social committee of the EU which is made up of representatives of employer and employees organisations and other organisations in the member states. Members representing Ireland include John Carroll, Liam Connellan, John Freeman and Bill Attley. It is important that they and our MEP's who are members of these committees are lobbied in case this matter should go through without their being fully aware of the implications.

A final decision will be taken by the Council of Ministers. In this instance it will be taken by the Finance Ministers. Since it is a tax matter the decision must be unanimous. No date has been set for this meeting but it will probably be held in May. It is crucial that the Irish members of the committees and Ministers oppose this measure. I call on the Minister for Tourism and Trade to take up this matter with the European Commission to protect our tourism industry and the jobs it generates.

The Minister of State has responsibility for European affairs and I appeal to her to do everything possible to ensure this proposal will not go through.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

I thank the Deputy for raising this matter. We share his concern at this proposal which is at a preliminary stage. I am sure that the Deputy is fully aware of the present rules concerning the VAT treatment of goods purchased by non-EU residents but, for the sake of clarity, I propose briefly to outline the current situation. What is at issue here is the VAT treatment of purchases made by tourists and other travellers through normal retail outlets, rather than the special duty free shops which are located only in special designated areas. At present, EU rules are somewhat general in this regard, merely laying down the principle that goods which are purchased within the Union by non-Union residents for their own personal use may be exempt from VAT, provided the goods are removed from the EU. Member states may, if they wish, set limits to the application of the exemption and they may also extend it to their own nationals whose habitual place of residence is outside the EU.

In this country we have adopted a very flexible approach. In the first place, there is no limit as to the value of goods which can benefit under the scheme. All purchases, no matter how small or how big, are eligible for VAT relief provided that they are removed from the EU within two months of their purchase. The relief can be given directly at time of purchase or by means of refund, the latter being the most common approach. It is a matter for the participating retailer concerned to decide how he wishes to operate the relief. In most cases, retailers avail of the services of refund agencies, which are private commercial concerns operating at the main points of departure in the State and providing a mail service. Irish citizens residing outside the EU for at least a year are also entitled to the relief. The main beneficiaries are tourists, emigrants and visiting businessmen from non-EU countries.

The commission proposal to which the Deputy refers was formally presented to the Council by the Commission only on 28 March last. It is just one of a number of items relating to the operation of the Single Market VAT regime which, in the Commission's opinion, require clarification or simplification in the light of their operation during the last year or so.

The proposal concerning purchases made by non-EU residents is being tabled in response to a specific commitment to bring forward proposals for harmonised rules which was given by the Commission when the transitional Single Market VAT regime was being adopted. The Commission propose that the relief should be restricted to purchases which exceed 175 ECU in value, roughly the equivalent of IR £140. They also propose the introduction of harmonised rules relating to the documentation which will be required to effect the relief and that the goods should be removed from the Community within three months of being purchased.

The proposal is at a very early stage of discussion: to date, there has been just one preliminary meeting at official level to consider it. At that meeting the Irish official expressed very serious reservations about the proposed threshold and they were not alone in doing this. The House will appreciate that it is impossible at this stage to predict what the outcome of the negotiations will be. However, I can state that the Minister for Finance is unhappy with the principle of a threshold limit and that, in any event, he is resolutely opposed to the proposed limit of 175 ECUs.

A very short time has elapsed since publication of the Commission's intentions and the Minister for Finance has not received any observations from trade interests in the matter to date. However, he believes that the proposed single item limit of 175 ECUs simply does not accord with the reality of tourist purchasing patterns in this country or in the EU generally. While tourists buy a large volume of quality Irish manufactured goods here, in most cases the cost of the individual items purchased would be quite modest and in any event, would be considerably less than £140. Nonetheless, retail shopping by tourists constitutes the lifeblood of many retailers and manufacturers in different parts of the country. A number of sectors of traditional indigenous manufacturing such as the knitwear, clothing, glass and the various craft sectors are heavily orientated towards servicing the tourist market.

The Government would be seriously concerned that adoption of the Commission's proposal would adversely impinge on purchasing patterns by tourists here for the very simple reason that they would have to pay significantly more for their purchases. There could also be a certain amount of resistance on the part of non-EU citizens to visit any member state of the Union. The proposal lacks logic in this wider context — the EU would be handicapping itself unnecessarily in the world tourism context.

In addition to the traditional tourist markets in North America and, to a lesser degree, Australia and New Zealand, Members of the House will be aware that in recent years there has been a marked development of a winter tourism market relating to visitors from Ireland. These tourists come here principally to shop and in the process they make an important contribution to the economic viability of not just retail outlets but hotels, restaurants and other tourism-related services during the off-peak winter season.

I am glad the Deputy raised this matter as it has given me an opportunity to indicate the Government's position. The Deputy can be assured that the views expressed here today will be conveyed in full to the Minister for Finance. I will also take up the point he raised about the Economic and Social Committee. I am sure our representative on the committee share our common view on this proposal.