I move: "That the Bill be now read a Second Time."
I am delighted to introduce Second Stage of the Value-Added Tax Consolidation Bill 2010, not least as a former member of the tax strategy group between 1997 and 2002. The Bill consolidates the law relating to VAT which is contained in the Value-Added Tax Act 1972, as amended. The VAT Act has been amended in almost every Finance Act since then and was significantly amended by the Value-Added Tax (Amendment) Act 1978. Furthermore, changes to the Act have also been made by numerous ministerial regulations made under the European Communities Act 1972.
The new VAT consolidation Bill continues the successful process of the ongoing consolidation and modernisation of the tax code. In 1997, the Taxes Consolidation Act consolidated direct taxes legislation dealing with income tax, corporation tax and capital gains tax. Following on from this, further tax consolidation took effect with the Stamp Duties Consolidation Act 1999 and the Capital Acquisitions Tax Consolidation Act 2003. It is the Government's intention to modernise and consolidate law relating to customs over the coming year.
VAT is a general, broadly based consumption tax assessed on the value added to the supply of goods and services. VAT is levied at each stage in the chain of production and distribution. However, VAT-registered persons can generally reclaim the VAT they have paid. Therefore, VAT principally affects consumers. VAT is governed by EU law, was introduced in Ireland in preparation for our joining the EEC and took effect from 1 November 1972. Prior to this, Ireland had a turnover tax, introduced in 1963, and a wholesale tax. These taxes were replaced by the new VAT regime, which operated a system of five separate VAT rates. The number and level of VAT rates applying in Ireland varied substantially throughout the 1970s and 1980s. In addition, the range of goods and services to which those rates applied were changed.
The attempt to extend VAT to children's shoes and clothing in the January 1982 budget has entered the political annals. The amended March 1982 budget introduced by Mr. Ray MacSharry, which applied VAT at point of entry, also took the step of exempting books from VAT, which gave a significant and lasting boost to the Irish publishing industry. Very high VAT rates, such as the 35% standard rate introduced in the 1983 budget which lasted a couple of years or the opening up of more recent gaps between the Irish and British rates, since closed, have, along with often more important exchange rate differences — I shall put it diplomatically — stimulated cross-Border trade to an extent that was not intended and probably contributed to Newry acquiring city status. VAT is first and foremost a vitally important source of revenue, but also where margin for discretion exists an instrument of policy. Arising from agreement at EU level, by 1993 the current system of two VAT rates along with the zero rate came into effect.
As Deputies will be aware, changes to VAT law at domestic level may only be made within the confines of EU VAT law, which is continually subject to reform. The most recent extensive revision to the EU VAT code was the recasting of VAT law in the 2006 EU VAT directive, which is the current text that governs VAT within the EU. In this context, there has been little change in Ireland's VAT rates since 1993 and major VAT changes have generally related to administration, countering fraud and implementing EU provisions.
In Ireland, as indeed in other EU member states, VAT is a major source of Exchequer revenue. In Ireland, VAT accounts for around one third of the overall tax yield to the Exchequer, some €10 billion in recent years. The VAT Act is now substantially different from and more complex than the original 1972 text. The need for consolidation has been recognised by the Revenue Commissioners and stakeholders for some time. Earlier plans for consolidation were put on hold, because of significant changes that were ongoing to the VAT code at domestic and EU level, with the 2006 VAT directive recast and the extensive new VAT on property regime introduced in the 2008 Finance Act. More recently, the VAT code was amended by the ministerial regulations in late 2009, which implemented the EU VAT package that involved significant changes to the rules governing the place of taxation of supplies of services and cross-border refunds within the EU. However, the time is now opportune to consolidate the VAT code.
The preparatory process for consolidating VAT followed the same rigorous process that was adopted for the Taxes Consolidation Act 1997, the Stamp Duties Consolidation Act 1999 and the Capital Acquisitions Tax Act 2003. The aim at all times was to ensure the most accurate consolidation of the existing law with nothing left out and nothing added. This is what has been achieved in this Bill. The Bill was considered by the Office of the Parliamentary Counsel to the Government, and has been duly certified by the Attorney General as a consolidation of existing VAT law. The Attorney General's certificate was included in the Dáil First Stage motion introducing the Bill on 20 October.
In preparing the VAT Consolidation Bill, an initial draft of the Bill was placed on Revenue's website for consultation with interested parties and was separately made available to the Law Society of Ireland, the Irish Taxation Institute and the Consultative Committee of Accountancy Bodies Ireland. These bodies were afforded an opportunity to submit comments on a draft of the Bill.
In regard to the layout of the VAT Consolidation Bill, as stated earlier, Irish VAT law is governed by the EU VAT directive, and, in this context, the provisions of the new VAT Consolidation Bill have been remodeled as far as possible on the VAT directive in order to facilitate better alignment and thereby easier reference to the directive. To this end, and in preparation for the consolidation exercise, changes were made in recent Finance Acts. In particular, the Finance Act 2010 reordered the Schedules to the VAT Act, so as to reflect their origins in terms of where the appropriate exemption or reduced rate is permitted under the VAT directive. The most notable effect of this remodeling exercise is the fact that there are now a much greater number of sections in the Bill. The 1972 VAT Act as amended contained 44 sections with a number of additional sections inserted throughout the Act. The new VAT Consolidation Bill contains 125 sections. This is primarily due to expansive sections in the Act being replaced and clarified by a number of separate sections in the Bill. For example, the VAT provisions relating to accountable persons in section 8 of the Act have become Part 2 of the Bill, accounting for 15 sections, namely, sections 4 to 18 inclusive. Furthermore, the use of archaic language in general and of the old-fashioned device of using provisos to change the meaning of a section have also been eliminated in the Bill.
To facilitate readers of the Bill, the statutory derivations for the legislation provided for in the Bill are set out in the margin, in the side-note to each section. These entries show the source of each section in the Bill. In addition, the memorandum published with the Bill, often referred to as the destination table, sets out the provisions of the 1972 VAT Act in chronological order, and indicates where the provision is located in the new Bill. If a provision of the VAT Act has not been enacted in the Bill, the memorandum explains why. The most common reasons for not including a provision in the Bill are that the provision in question has already been repealed, or is unnecessary, where, for example, it might be superfluous.
The Bill before the House is the culmination of considerable work. The greatest benefit which will result from this consolidation will be the restructuring of the VAT code in a more clear, coherent and logical way. This will make it more accessible and user-friendly for all users, including members of the Oireachtas, businesses, tax practitioners and students of taxation, who have to cope with annual changes to VAT legislation.
I do not intend to go through every section of the Bill. The explanatory memorandum, which has been published with the Bill, sets out in summary form the purpose of each section of the Bill. However, I would like to give Deputies some flavour of the overall structure of the Bill.
The Bill contains 125 sections, which are divided into 14 parts. It also contains eight Schedules. Part 1 contains the Short Title, defines certain terms, and sets out rules for the construction of certain references used in the Bill. It also provides for the charge to VAT. Part 2 contains the provisions relating to persons who are accountable for VAT. Accountability is a key concept in VAT, as persons who are accountable must register for VAT, submit tax returns and payments, keep records and comply with the provisions of VAT legislation. The part defines persons who are accountable for VAT by default or election, and persons deemed not to be accountable. Provision is made for VAT accountability in the case of intra-Community acquisitions of goods; certain services received from abroad; certain services of the State and public bodies and the activities of VAT groups. This part also provides for reverse charge mechanism in certain circumstances.
Part 3 sets out the rules relating to taxable transactions for VAT purposes. A transaction has to be taxable in order for VAT to apply. Taxable transactions include the supply of goods, services and intra-Community acquisitions, all of which are defined in Part 3, along with self-supplies, transfers not considered to be supplies, and supplies where there is no consideration.
Part 4 contains the provisions relating to the place of supply rules for goods, services and intra-Community acquisitions, which are central to the operation of VAT. Provision is made for the supply of goods to unregistered persons, special rules for the place of supply of gas and electricity supplies, and general exceptions to the rules relating to services.
Part 5 contains provisions relating to the amount on which tax is chargeable. In general, VAT is payable on the full consideration including any ancillary charges made, such as additions for packing, transport, etc, although in some cases open market value may apply.
Part 6 contains the provisions relating to rates of VAT. It sets out the rates of VAT that apply in the State, providing rules for composite supplies, and for special rating rules for works of art and contract work. It also provides that VAT will not be charged on exempted activities, which are set out in Schedule 1.
Part 7 contains the VAT provisions relating to imported and exported goods. For VAT purposes, imports are goods brought into Ireland from outside the EU and VAT is normally paid at import. Exports are goods supplied, subject to a condition that they are to be transported to a place outside the EU and zero-rated for VAT purposes. In addition, Part 7 provides for temporary importation, the special scheme where exporters can have their inputs zero-rated, and the retail export scheme.
Part 8 provides for VAT deductibility. An accountable person may deduct the VAT charged on most goods and services that are used for the purpose of their business, where they have appropriate documentation, such as a VAT invoice. This part also outlines where deductions may not be made as well as situations where deductibility is apportioned. Provision is also made for the capital goods scheme for property. A capital good is defined in terms of property that has been developed and related only to persons carrying on a business activity and not to private individuals.
Part 9 provides the rules relating to registration, invoicing, returns and payments of VAT. It also contains rules on statements required by traders in respect of supplies of goods and services to other member states and provisions in regard to records that must be kept for VAT purposes.
Part 10 sets out the provisions relating to a number of special schemes that are provided for in the VAT Act. These include the scheme for flat-rate farmers, investment gold, as well as the margin schemes for taxable dealers, travel agents and auctioneers. Under the margin schemes, suppliers pay VAT on their profit margin in certain circumstances.
Part 11 covers VAT rules on property. Under the new VAT on property system, the first supply of newly developed property is taxable for five years from completion. The second and subsequent supply is taxable for two years following occupation. Transitional rules apply for properties that have been developed under the old VAT on property system.
Part 12 deals with refunds and repayments provisions, including ministerial refund orders and refunds to foreign traders. This includes an electronic refund procedure for businesses operating from other EU member states, and provides for regulations to allow repayment of deductible Irish VAT suffered by non-EU based businesses.
Part 13 sets out the provisions relating to the administration of VAT, including placing VAT under the care and management of Revenue. Provision is made for estimates, assessments, electronic returns and time limits. Interest, penalties and appeal provisions are also covered in this part.
Part 14 covers the repeals, transitional and other housekeeping measures needed to bring the VAT Consolidation Act into effect.
Finally, there are eight Schedules to the VAT Consolidation Bill. Schedules 1 to 3 list the activities that are exempt from VAT, zero-rated and charged at the reduced-rate, respectively. Schedule 4 lists agricultural activities, and Schedule 5 lists items of art and antiquities, as specified in section 46 of the Bill. Schedule 6 lists the activities that are within the scope of VAT as required by the EU VAT directive when undertaken by State or public bodies unless the activity is otherwise exempt from VAT. Schedule 7 makes necessary consequential amendments to references to VAT in other legislation and Schedule 8 lists legislation that is being repealed or revoked as a result of the new Bill.
The Revenue Commissioners are in the process of preparing guidance notes on the VAT Consolidation Act which they will publish as soon as possible after the Bill is enacted. I understand that these notes will also be made available on their website. For the information of Deputies, the guidance notes will follow the format and style of the guidance notes published in regard to the previous consolidated tax enactments. I understand that these notes will also be made available on their website. For the information of Deputies, the guidance notes will follow the format and style of the guidance notes published in relation to the previous consolidated tax enactments.
With regard to the timetable for passage of the Bill, it is important that the VAT Consolidation Bill is afforded priority, to ensure that it is enacted into law by end November 2010, as any VAT changes made by regulation to implement VAT directive changes, or by financial resolution on budget night, or in the Finance Bill 2011 would invalidate its status as a consolidation Bill. This would necessitate a recommencement of the consolidation process, create additional work, and delay its implementation unnecessarily until later next year. For this reason, it is proposed that the Bill be referred to the standing Joint Committee on Consolidation Bills for consideration next week.
A number of motions will be included on the Order Papers of both Houses to comply with the various rules and procedures, as set out in the 2007 Standing Orders for Public Business of Dáil Éireann, to facilitate the timely passage of the Bill. These motions will facilitate the taking of Committee, Report and Final Stages, and will shorten the minimum periods of time provided for in the Standing Orders.
As this is a consolidation Bill, and is so certified by the Attorney General, the effect of the law governing VAT in Ireland will remain unchanged. No substantive charges are made in the Bill which would change the regulation of VAT. During its passage through the Houses of the Oireachtas, the only amendments which can be taken on a consolidation Bill such as this are those intended to remove ambiguities and inconsistencies, substitute obsolete or inconvenient language, or achieve uniformity of expression. Indeed, substantive changes to existing law are not permitted under the consolidation process.
I would like to place on the record the Minister for Finance's, my own and the Government's appreciation of the amount of work which went into preparation of the Bill. In particular, the staff of the Revenue Commissioners and the Parliamentary Counsel's office are to be congratulated on an excellent undertaking. I commend the Bill to the House, and I look forward to the co-operation of Members in its rapid enactment.