Value-Added Tax Consolidation Bill 2010: Report and Final Stages

Question proposed: "That the Bill be received for final consideration."

For the purpose of clarity, did the Seanad take Second Stage of the Value-Added Tax Consolidation Bill 2010 and, if so, when did the debate take place?

The motion was taken without debate for Second Stage.

I note the motion.

It was a decision of the House.

Was the Bill ever received for Second Stage debate?

Is it not necessary to hold Second Stage debates on legislation?

It was decided by the House that Second Stage would not be taken and it was referred to the Joint Committee on Consolidation Bills.

When was that decided?

I will revert to the Senator with the date.

Question put and agreed to.
Question proposed: "That the Bill do now pass."

For the information of Senator Alex White, the Seanad was represented when the Value-Added Tax Consolidation Bill 2010 was considered by the Joint Committee on Consolidation Bills. As a consolidation Bill, special procedures applied and it was dealt with by an ad hoc committee.

I appreciate the opportunity to say a few words about the Value-Added Tax Consolidation Bill 2010, which has now been passed. The Bill consolidates the law relating to VAT, as contained in the Value-Added Tax Act 1972. This continues the successful ongoing process of consolidating and modernising the tax code. If follows the Taxes Consolidation Act 1997, which consolidated direct taxes legislation dealing with income tax, corporation tax and capital gains tax; the Stamp Duties Consolidation Act 1999; and the Capital Acquisitions Tax Consolidation Act 2003. The Government intends to modernise and consolidate the law relating to customs over the coming year.

VAT is governed by EU law. It was introduced in Ireland in preparation for joining the EEC. It took effect from 1 November 1972. The number and level of VAT rates applying in Ireland varied substantially throughout the 1970s and 1980s. Changes were also made to the range of goods and services to which those rates applied. Arising from agreement at EU level, the current system of two main VAT rates, along with the zero rate, came into effect in 1993. Since then, major VAT changes have generally related to administration, countering fraud and implementing EU provisions. In Ireland, as in other EU member states, VAT is a major source of Exchequer revenue. In Ireland, VAT accounts for approximately one third of the overall yield to the Exchequer, or some €10 billion.

The preparatory process for consolidating VAT was as rigorous as that adopted for earlier tax consolidations. At all times, we aimed to ensure the most accurate consolidation of the existing law, with nothing left out and nothing added. That has been achieved in this Bill, which has been duly certified as a consolidation of existing VAT law by the Attorney General. Changes to VAT law at domestic level may only be made within the confines of EU VAT law, as set out in the 2006 EU VAT directive. In this context, the provisions of the VAT consolidation Bill have been remodelled as far as possible on the VAT directive to facilitate better alignment and thereby easier reference.

The use of archaic language has been eliminated in the Bill. The most notable effect of this remodelling exercise is that the number of sections in the Bill is now much greater. During the passage of a consolidation Bill, the only amendments which can be made are those intended to remove ambiguities and inconsistencies, substitute obsolete or inconvenient language or achieve uniformity of expression. Substantive changes to existing law are not permitted under the consolidation process. A small number of such amendments were made on Committee Stage.

The Bill before the House is the culmination of considerable work. The greatest benefit of this consolidation will be the restructuring of the VAT code in a clearer, more coherent and logical manner. The code will become 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. The Revenue Commissioners will publish guidance notes on the Bill when it is enacted. I appreciate the assistance of the House in the speedy passage of the Bill and the contribution of some Senators to the consideration of the Bill by the standing joint committee.

It is important that the Bill is enacted before the start of December, because any VAT changes made by regulation, in the budget or in the next finance Bill would invalidate the status of the Bill as a consolidation Bill. That would necessitate a recommencement of the process and delay its implementation unnecessarily. I express my appreciation and that of the Minister for Finance and the Government of the amount of work that went into the preparation of the Bill. The staff of the Revenue Commissioners and the Office of the Parliamentary Counsel are to be congratulated on a job well done. I thank the officials in the Department of Finance. I also thank Senators for their consideration of the Bill.

I thank the Minister of State and his officials for their work on this important legislation. The volume of the end product is substantial. I understand the Minister of State's remarks about the need for certain changes, such as the addition of sections and the removal of archaic language, which have added more pages to the Bill.

I was interested to hear what the Minister of State said about the concept of VAT from a taxation perspective. He mentioned that it accounts for almost a third of our annual tax income. All of us, including the members of the Cabinet, will be contemplating that over the next few weeks, which will be vital for this country. If one judges VAT in the context of the principles of taxation, it will become evident that VAT does not tick the "ability to pay" box. I accept that it is one of the more successful taxes from the perspectives of understanding and ease of collection. Great flexibility is associated with VAT rates.

The Minister of State mentioned EU directives and legislation on a few occasions during his contribution. He referred to our obligations to Europe from the perspective of the VAT directive and the VAT rates. Perhaps it is a sign of things to come, but that is a debate for another day.

The consolidation Bills that are rather infrequently considered by this House and the other House are always necessary and interesting. The end product is always a reflection of the volume of legislative work done by our colleagues over the generations. Various changes and amendments have been made by officials in various Departments during that time. All of that work comes to fruition when a consolidation Bill is produced. It is likely to be some time before the next VAT consolidation Bill is produced. Therefore, this legislation will be with us for some time.

I echo the Minister of State's words of thanks to the officials and our colleagues in both Houses who have played a part in the passing of this legislation. The debate on VAT and taxation in general will not end now that this Bill has been passed. It is here to stay. I hope the important debates in this House and the other House in the next few weeks and months will be interesting and vibrant. It is obvious that the question of taxation is central to the economic survival of this country. It is great that we can hear different perspectives and views — I am resisting use of the word "ideology" — on how we should tax the people and fund the country. This will be a valid and important matter for debate in the next few weeks. I thank the Minister of State for bringing this Bill to the House. I also thank my colleagues and, more importantly, the officials who did the ground work to ensure this legislation was prepared properly.

I welcome the Minister of State and thank him for bringing this Bill to the House. I understand the amount of work that must be involved in the consolidation of any range of Acts. This legislation is based on the model that was used in the cases of the Stamp Duties Consolidation Act 1999 and the Capital Acquisitions Tax Consolidation Act 2003. This road has been travelled before. I can imagine the scale of work that must have been required to consolidate VAT law, which is constantly being reformed and reviewed at EU level.

I would like to reflect on the nature of VAT and on the proportion of our tax income that is generated from VAT, which is not necessarily the most progressive of taxes. As Senator Bradford said, it does not tick that particular box. It disproportionately affects people on lower incomes, as a higher proportion of their incomes is spent on VAT. Their incomes are taken into account in the case of income tax. We could have a wider debate about the place of VAT and transaction taxes in general. Perhaps the tax system could be remodelled in order that it no longer relied on transaction taxes. When transaction taxes are the main mode of collection, politicians are tempted to pursue policies that drive transactions. That can lead to the cycle of boom, bubble and burst that we have experienced in the house building sector in particular. It is important we put our tax system on a more sustainable footing. Nonetheless, I welcome the consolidation of the legislation in this area.

I recall my father talking at the table about turnover tax many years ago when I was a child. He was speaking in the context of the introduction of a VAT rate of 35%, which was extraordinarily corrosive for business along the Border. In his speech in the Dáil, the Minister of State attributed, in part, Newry's city status not only to the currency differential which comes and goes but to the different VAT regimes on either side of the Border. There are causes and consequences. If Newry can, in part, thank VAT for its city status, one can imagine what it has done to my town. I do not want to come up with a moniker for it but it has been a very touchy and difficult issue. Even the 0.5% which the Minister for Finance removed last year, although it was not much in monetary terms, was an important signal and a motivational tool for people to stay on this side of the Border to do their shopping. The UK makes its own decisions and it has increased the VAT rate from 15% to 17.5%. That, too, is a help.

VAT is an extremely sensitive issue when it comes to the Border area. We need constantly to calibrate our own decisions against what is happening in the UK and not allow differentials to develop which become dissuasive to our potential markets, including retail markets.

In regard to exemptions and reductions, I have heard arguments for VAT reductions on everything from condoms to windmills. Usually the case made is around the social benefit that might accrue. In the case of environmental goods, it is the off-set against Kyoto penalties, for instance. There is always a case for different sectors to call for reductions. The restaurant sector has been quite strong in this regard in the context of job creation. All those cases need to be listened to carefully. We need to explore, to the fullest extent, the potential we have to use these reduction mechanisms, if they are available to us.

Obviously, we need to be consistent with European VAT directives in application. They apply in certain areas. I would be very keen that we explore such mechanisms in regard to products relating to energy efficiency and energy reductions. There are enormous gains to be made. It is not about sectoral gain or about any one group benefiting. I see a national gain in terms of efficiency, competitiveness, job creation and, ultimately, carbon emissions.

I have probably strayed a long way from the original intent but I wanted to make those points. I thank the Minister of State for bringing this Value-Added Tax Consolidation Bill 2010 before the House.

There is consensus on the importance and value of the work done in the preparation of this consolidation Bill. The extent to which legislation is codified, consolidated and made easier to understand and access is welcome. The officials involved in this very arduous work are to be congratulated on the legislation they have produced and which we will be happy to pass.

I asked earlier about the trajectory of the legislation and whether a Second Stage debate was necessary in this House. I am grateful to the Clerk and the Chair for pointing out that given that the legislation did not begin in this House and went through a particular committee process, it was not required. I do not believe there always needs to be a Second Stage debate on legislation. I was not making a plea for that at all. Very often there is no need for Second Stage speeches on legislation and it would be better if we got down to the detailed work of scrutinising it. That is what was done in the particular committee process which was brought to bear in respect of this legislation. That is the right way for it to be done. I have no objection to that. I wanted to ensure there would not be any infirmity in it by reason of there not having been a Second Stage debate but it has been clarified that is not the case.

Senator Bradford signalled the fact there will inevitably be a broader debate on taxation measures, the balance of taxation, the broadening of the tax base and so on. We hear so much about that but we have not really got around to having a very detailed discussion on it. It is a subject we cannot avoid. We do not debate many of the things we need to debate until perhaps we are reminded to do so. Unfortunately, we are being reminded of many things by people in the EU Commission and elsewhere.

Commissioner Rehn reminded us last week that this is a low tax economy and that he thought we needed to move from being a low tax economy to a normal tax economy. We must have a mature debate on this matter because if we want the level of public services we have built up and want to maintain and enhance them, they must be paid for through taxation. All the political parties must be a bit more honest in terms of the public debate. Nobody wants to be the first party out of the traps to propose new taxation. Regrettably, the competition in the last election was competition between all parties as to which would reduce taxation. That is in the past and simply cannot happen. It is a question of courage right across the board.

I do not believe Senator Bradford should be too afraid of ideology. "Ideology" is not necessarily a bad word. What I mean by ideology is something much simpler than the Soviet system versus the doctrinaire right wing position. There are political questions as to the balance of taxation and whether people who are wealthier should have to pay a lot more tax than they have being paying. The question of the balance between indirect and direct taxes and whether there should be a property tax and a water tax are issues we will have to debate. Given many of things that have happened to us recently, can we start that debate ourselves rather than have it imposed on us, because it will be imposed on us?

Senators will note I have not made a partisan statement in this contribution. All parties are responsible because all politicians are fearful of this subject. It is a mark of our lack of maturity that we are not more up-front about putting a price on the public services for which we are fighting and which we want. They must be paid for and the only way to do so is to pay for them ourselves through taxation.

I would like to say a few words in response to the short debate. I admit to Senator Alex White that this is the first time I have come across this procedure but I am sure we all come across new things from time to time.

The revenue raised by VAT was referred to by Senator Bradford. It is now one third of our revenue. In the halcyon days of three or four years ago, it might have been closer to one fifth than one third but that is the situation that exists now given the contraction of the tax base, which obviously must be addressed.

The progressiveness or otherwise of VAT was also referred to by Senator Bradford. There is the perception that VAT affects most adversely those who are less well off because they pay the same amount of tax while having a lower income. However, many goods and services availed of by low income households are VAT-free or have a zero rate of VAT — a great proportion of their expenditure is on food — and that counterbalances somewhat the argument about the incidence of the tax on the less well-off. That also includes children's clothes and shoes and oral medicine. A reduced VAT rate applies to home heating and labour intensive purposes.

Reference was made to the Border situation and there is no doubt there has been fluctuation back and forth. As I am sure Senator Dearey is aware, the VAT rate across the Border is due to rise by 2.5% on 4 January which will narrow the gap, although it does not get rid of exchange rate differences.

It needs to be observed also that petrol and diesel prices are roughly on a par in nominal terms, which means that, in practice, prices are 12% to 15% higher on the northern side of the Border. That, in principle, causes people to travel across the Border in a southern direction.

Another Senator referred to proposed VAT exemptions on condoms and windmills and we have all been lobbied about VAT exemptions on hurley sticks and medical equipment. If one increases the exemptions, apart from any EU dimension on the subject, one is in danger of making the administration of it more complicated. That is especially the case with medical equipment purchased by charities as opposed to other groups.

We get lobbied by groups to raise taxes as well as to lower them. For example, in the run-up to every budget there is an active health lobby and an environmental lobby. As Members will note from this morning's newspapers, the horseracing industry is seeking a doubling of the betting tax to 2%. One of the most successful environmental taxes was the tax levied on plastic bags which was introduced very shortly before the last general election but one.

I thank everyone for their support and reiterate our gratitude to those who have drawn up the legislation.

Question put and agreed to.