Trevor Sargent
Question:86 Mr. Sargent asked the Minister for Finance if he will follow the example of the UK Government in having a reduced VAT rate of 5% for renewable energy equipment to promote clean technology. [9718/01]
Written Answers. - VAT Rates.
I understand the UK has a 5% rate for the installation of energy saving materials and this generally applies to supplies made by installers of energy saving materials, including builders and other businesses, who install energy saving materials either as their main business or as incidental to other activities. The reduced rate does not apply to the purchase of energy saving materials by businesses or purchases for DIY use.
In our case, our reduced rate of 12.5% applies to energy saving material where supplied by a contractor, provided it complies with the "two thirds rule". The reduced rate generally applies where the value of the goods used in providing the service, in effect their cost excluding VAT, is less than the two thirds of the VAT exclusive total charge to the customer. Energy saving materials purchased by private consumers are taxed at the standard rate of 20%.
EU VAT law allows for up to two reduced rates and one of them must be not less than 5%. We have opted to have only one reduced rate of 12.5%. There would be significant budgetary implications if a 5% rate was introduced. In addition to the immediate cost to the Exchequer in terms of revenue lost on the installation of energy saving materials, the introduction of a 5% rate would give rise to demands from other groups also at the 12.5% rate to benefit from the reduced rate and this would, if all were accepted, have a significant Exchequer cost. I am not convinced that reducing rates of VAT on particular products would assist in the resolution of environ mental problems. I cannot, therefore, agree to the proposed reduction sought by the Deputy.
Where taxable businesses install renewable energy saving equipment, such as equipment for a windfarm, any VAT paid on the purchase or installation of such equipment is recoverable by the business under normal VAT rules.