Vol. 528 No. 2
133 Proinsias De Rossa asked the Minister for Finance if the Government has availed or intends to avail of the EU scheme whereby labour intensive industries can, with the approval of the Commission, be exempted from VAT or have VAT reduced; if he will consider seeking to have this scheme applied to the carpet industry; and if he will make a statement on the matter. [29957/00]
There is no EU scheme permitting exemption from VAT for labour intensive industries. Council Directive 99/85/EC authorises member states to apply a reduced rate of VAT as low as 5%, for a maximum period of three years between 1 January 2000 and 31 December 2002 to a very restricted number of services such as repairing bicycles, shoes and leather goods, clothing and household linen, including mending and alteration, renovation and repairing of private dwellings excluding materials which form a significant part of the value of the supply, window cleaning and cleaning in private households, domestic care services, e.g. home help and care of the young, elderly, sick or disabled, hairdressing.
The services concerned must be labour intensive, largely provided direct to consumers, mainly local and not likely to create distortions of competition and there must be a close link between the lower prices resulting from the rate reduction and the foreseeable increase in demand and employment.
Ireland was fully supportive of this directive but decided not to participate as most of our labour intensive services are subject to the reduced VAT rate of 12.5%. However, the Government is committed to retaining a low rate for labour intensive services and we will be closely examining any proposals in this respect which may emerge in 2003.
Member states who wanted to participate were required to inform the Commission before 1 November 1999. It is therefore no longer possible to participate in the scheme at this stage. It is intended that before 31 December 2002 that the Commission shall forward a global evaluation report to the Council and Parliament accompanied if necessary by a proposal for appropriate measures for a final decision on the VAT rate applicable to labour intensive services.
It is not clear as to how the provisions of this directive could be applied to the carpet industry. The sale of carpets to non taxable persons is usually standard rated at 21%. However, if a carpet is supplied and fitted by a contractor, it is subject to the 12.5% rate if the cost excluding VAT to the contractor in carrying out the work exceeds 2/3 of the total cost to the contractor, exclusive of VAT. A carpet manufacturer which supplies over £40,000 of goods in any one calendar year is required to register for VAT and is able to reclaim their inputs.
