Richard Bruton
Question:208 Mr. R. Bruton asked the Minister for Finance if he will consider reducing the VAT on bed and breakfast establishments in order to promote tourism at a time of considerable difficulty in the industry. [13071/02]
Written Answers. - Tax Reliefs.
The current situation is that bed and breakfast establishments charge VAT at the reduced rate of 12.5%. There is provision within the EU Sixth VAT Directive to apply a reduced rate of VAT which could be as low as 5% for "accommodation provided by hotels and similar establishments including provision of holiday accommodation and the letting of camping sites and caravan parks". If there was a change in the current VAT treatment of bed and breakfast accommodation, this would have to be extended to all tourist rented accommodation, such as hotels, since a different rate of VAT for bed and breakfast as opposed to other forms of tourist accommodation would create a tax-based comparative advantage for one part of the tourism rented sector.
I believe that the introduction of a lower rate of VAT for bed and breakfast accommodation would also lead to pressure for the rate to apply to all activities which could benefit from such a second reduced rate, such as housing, some foods, certain pharmaceuticals and newspapers. If all activities which could be taxed at a reduced rate were taxed at 5%, this would mean a loss of revenue for the Government of at least €500 million. In view of the potential Exchequer costs of introducing any new reduced rate, I cannot agree to make any change to the rate of VAT on bed and breakfast accommodation. As the Deputy will appreciate, every year I receive numerous requests for the introduction of new rates or the extension of existing ones. However, tax reliefs, no matter how worthwhile in themselves, reduce the tax base and funding available for other projects.
Pat Carey
Question:209 Mr. Carey asked the Minister for Finance if he will agree to exempt charities from the payment of VAT; and if he will make a statement on the matter. [13072/02]
Charities and non-profit groups are exempt under the EU Sixth VAT Directive with which Irish VAT law must comply. This means they do not charge VAT on their services and cannot recover VAT incurred on goods and services that they purchase. Essentially only VAT registered businesses which charge VAT are able to recover VAT. There are no provisions in the EU Sixth VAT Directive which would allow for any refund of VAT to exempt bodies. I would point out, however, that charities already enjoy relief from most taxes. Furthermore, in the Finance Act, 2001, I provided for a new scheme of tax relief for donations to charities. This is a generous scheme which has, I understand, already been of significant benefit to them.