Dáil Éireann debate -
Wednesday, 28 Jan 1998

Vol. 486 No. 1

Written Answers. - Farm Sales VAT Repayment.

Proinsias De Rossa

Question:

87 Proinsias De Rossa asked the Minister for Finance the calculations on which he based the decision in the recent budget to increase the flat rate VAT repayment on farm sales to 3.6 per cent and to indicate the size of the VAT revenue foregone by this rate of VAT repayment in comparison to a situation where the repayment did not exist; and if he will make a statement on the matter. [1870/98]

Minister for Finance (Mr. McCreevy):

The position is that, under VAT law, farmers are not obliged to register for VAT, regardless of their turnover levels. As a group, unregistered farmers are compensated for the VAT paid by them on their farming inputs in accordance with a mechanism provided for in the EU Sixth VAT Directive. The scheme, which is essentially a simplification measure, provides for a set amount (known as the flat-rate refund or addition) which farmers add to their prices when selling to VAT registered businesses (co-ops, meat factories etc). The VAT registered business, in turn, deducts the addition as a normal business input in its periodic VAT return. As indicated on budget night, the flat rate will increase from 3.3 per cent to 3.6 per cent from 1 March 1998.

In accordance with criteria set down in the directive, the level of the flat-rate refund is calculated each year on the basis of macro-economic data (i.e. agricultural inputs and production and the prevailing VAT rate structures) relating to such farmers for the preceding three years. For 1998, the rate of 3.6 per cent was derived by averaging the updated calculated rates of 3.2015 per cent (1995), 3.8631 per cent (1996) and 3.6923 per cent (1997).

As regards revenue foregone, the amount to be refunded to farmers through the flat rate scheme in 1998 is estimated at £93 million. However, if the flat-rate scheme were to be abolished, the farmers could still register for VAT and reclaim the £93 million in this way. Such farmers could be expected to be in a permanent repayment position as most of their outputs are zero rated i.e. food. In addition, there would be a considerable additional administrative cost for both the Revenue Commissioners and the farmers if all such farmers had to go the route of registration to reclaim VAT on their inputs.