We are discussing a group of four amendments. Amendment No. 1 seeks to delete the €75 figure entirely, amendment No. 2 seeks to reduce it to €50, amendment No. 3 seeks to reduce the €75 figure to €1 and amendment No. 4 calls for a review to be laid before the House on the operation of this section of the Act within 12 months.
As originally published, the Bill required the value of qualifying goods to exceed €175 for third-country travellers to qualify for the scheme. It also required UK citizens to show proof that VAT and customs and excise duties have been paid. These measures do not eliminate the use of the VAT retail export scheme for UK residents post Brexit.
Instead, by excluding goods below a certain value threshold and requiring proof of declaration of importation into the UK for any goods for which a refund is claimed by a UK-based traveller, they provide the legal basis to protect the Exchequer revenues and to control and minimise any scope for abuse of the scheme. This is something I believe to be necessary when consideration is given to Ireland's proximity to the UK and the volume of traffic between the two. However, in recognition of the challenges facing the retail sector, to support the sector in these challenging times and in light of the various comments that have been made by the industry and public representatives since the Bill was originally published, on Dáil Committee Stage the Minister amended the original limit of €175 and has reduced it by approximately 60% to €75, thereby going much further than halfway on achieving a compromise between €175 and zero. This will apply to all third-country travellers who are seeking a refund.
The amendment also calls for a report on the operation of the amendments effected by this section within 12 months. I am not in a position to accept this amendment but, as indicated by the Minister of Foreign Affairs on in the Seanad Second Stage debate two days ago, the Revenue and the Department of Finance will carry out a review of the operation of the scheme in the course of 2021. People will know that we have a Finance Bill every year because the Revenue and the Department review legislation on an ongoing basis and they come back each year with amendments to existing legislation. The operation of the scheme will be reviewed within the 12-month period and the findings can be taken into consideration for a Finance Bill amendment next year or when a review indicates that should be done. It would not be, however, a review that was laid specifically before the Oireachtas as proposed in the amendment; rather, it would be part of the normal review carried out each year by Revenue and the Department in respect of each tax heading, which permits the ongoing amendment of the finance legislation each year.
Approximately ten Senators have spoken on the difficulties caused by the €75 threshold, including the impact it will have on small craft shops and how more rural areas will be affected. It should be noted that we are taking this action because of Brexit. This scheme for tax-free shopping applies to those living outside the EU, and will now apply to those from England, Scotland and Wales. Northern Ireland is not included, as it is covered by the Northern Ireland protocol and therefore this will not have an impact on people travelling between North and South. Only those travelling between the rest of the UK and Ireland will be affected. As the UK is going to be outside of the EU for the first time, we had to include this measure. In the Bill before us today, well over 50% of the amendments concern tax, VAT, customs, capital gains tax and various other items. Therefore tax has featured in a big way in the assessment of the impact of Brexit on our revenues in Ireland. There are around 40 other sections that deal with the fact that the UK is leaving the EU and that introduce appropriate measures under other tax headings. This amendment understandably has attracted particular attention because of the impact it has on the tourism sector, especially given how tourism has been affected during the Covid-19 pandemic with many businesses unable to open.
It was decided to look at this in the context of Brexit and the UK leaving the EU. The first thing the Government did was to look at arrangements in place in Europe generally. It found that there are schemes in operation in other countries and in the European Union, the maximum threshold one can have for such arrangements is €175, while some countries do not have a threshold. It should be noted that we are working within the provisions set out in the EU VAT directive and the Minister originally introduced the maximum figure permitted under the EU VAT directive of €175. Having listened to the debate in the House and feedback from the public at large, he has since reduced that threshold to €75, as I previously mentioned. As one of the Senators has already mentioned, it should be noted practically every EU country has a threshold in place, and there are only two - Ireland and Spain - that currently have no threshold. The thresholds vary between countries, some of which have a threshold of €175, while others have thresholds of €100, €50 or €40. Therefore, we will rank in the middle of EU countries when the €75 threshold is introduced and we will be nowhere near the top of the scale. What we are doing is not unusual in itself and tourists coming to Europe are used to visiting countries with thresholds in place. I know that some would argue that it is a unique opportunity for Ireland to maintain not having a threshold but it is something with which tourists travelling to Europe are familiar. Consequently, while the introduction of the threshold it is a new concept for us, it is not a new concept for them.
Several Senators have commented on the cost of this measure. I accept that it is very difficult to put a figure on the cost of operating this scheme, because it involves customs operations, and those who operate the scheme on behalf of the shops have stalls at airports, where forms are stamped and then returned to the shops, and the refund is subsequently issued to the customer. We have all seen the extensive report that was commissioned by the five main operators of the scheme, which will process most of the refunds that are issued through the scheme and which are based at the airports. In addition, I wish to advise Senators that there are two further ways that the scheme could be operated. The shops could do it directly and give the VAT refund to the customers themselves, or they could offer a no-VAT system to those from outside of the EU, but most of them have chosen not to do that because a fundamental condition of this scheme is that the goods must be exported. It is not the case that the scheme applies to those who are visiting from another country and spending money; it applies when those visiting from another country take their purchases back home with them. If a shop were operating the scheme, it could not be guaranteed that a product bought in the store by a tourist would be taken out of the country with them. Therefore, while technically shops could operate the scheme, they could potentially be putting themselves at risk if they gave a refund or did not charge the VAT, and the Revenue subsequently found that there was no proof that the goods were actually exported. I understand why legislation facilitates the scheme being operated that way but at the same time, I understand why most shops would be loath to go down that road, even though the option is there.
That brings me to the issue of exportation. Given that around 30% of those visiting Ireland every year are from the UK, and stay for different periods of time, the proof of export is a key determinant of the scheme. The purchasing, the threshold, and the amount spent in the shop, whether cumulative or in a single transaction, is one half of the equation. The other half of the equation is that there must be proof of exportation. That is why most tourists complete the forms and hand them in when they are leaving the country, whether it is by port or airports, as the scheme will apply to those visiting from the UK if they spend over €75, regardless of how they leave the country. Therefore the scheme will be operated in ports such Dublin, Rosslare and even Holyhead.
Another point I wish to make is that there is a greater chance of people from the UK buying a product here and possibly then consuming or using it while they are here or perhaps taking it home as a used product. While people may say that I am nitpicking, that is not the purpose of the scheme.
If someone buys a T-shirt here, wears it here and then takes it home, it would not be considered a product for export, because it was used here and then taken home. One has to be able to show that the product purchased was exported intact. That is the second half of this scheme and that is a factor that comes into this as well. One has to prove that the product was exported and the craft shops know that as well.
An interesting point was made about the app. That is probably where this is going to go eventually. Revenue authorities in other countries are already examining using an app, although none of them have one that operates fully satisfactorily yet. It is easy to handle the transaction, the receipt, to whom it is to be refunded, and whether it was paid by card or whatever, but proving export has to be part of any software associated with an app. That is a particular complication. Other countries are a little ahead of us on this issue because they have been operating thresholds up to now. I am quite confident that if they come up with a system, Revenue will move on to it, as it did with the stay-and-spend scheme. Unfortunately, Covid stopped many people travelling outside of their county. That scheme could have been beneficial but further Covid restrictions prevented it having the impact it could have had. The app could come into it but that is down the road. I will go back to the Minister and suggest that part of the review to which he has committed should seek to develop this app solution. There would probably be something at the airport where people could flash the app at the point of leaving the country or upload their receipts in some way. That can be done.
This next issue was also mentioned and there are different views on it. The Minister mentioned the €175 threshold in the original legislation. I do not know who has received a copy of the independent report but it shows that, of the transactions under €175, the average transaction came to €65. That is in the report, which was not done by the Department of Finance but on behalf of the industry. I understand what Senator Casey is saying. Sometimes the bus is leaving and people are being told to grab something else worth €10 off the shelf. I used the following parallel in the Dáil last week: many households in Ireland will be familiar with the voucher scheme operated by supermarkets where if people spend €50, they get €10 off. It would not be very clever for people to go to the till having spent €48 when they could spend the extra €2 and get €10 off. People will understand, if they spend €55 or €60 in a shop and the person in the shop says there is something at the till that will bring them over €75, that they will get €18 back. That is the VAT they would get back on the €75. The shopkeeper is saying to those customers that if they spend more, it will cost them less because they will get a tax refund and an extra product to take home. It may encourage people who are already spending €50 or €60 to go over the €75 and get the €18 back, although I cannot say that it will. I consider that a major incentive. It is a bit like telling tourists that there is a voucher and if they spend in excess of €75, they will get €18 back. I accept that it is a little bit clumsy and the people in the tourism sector are getting their heads around it, as well as the simple message we have at the moment, which is that we have very straightforward tax-free shopping. That is the central message. This other message is saying that if people spend €75 they get money back. I hope the industry will be able to adapt to that point as well.
As has been noted, I have discussed this with the Ministers for Foreign Affairs and Finance and they were very clear that they have taken on board everything that has been said. Comments were made here on Second Stage, as well as in the Dáil in the past few days, and the industry has been making representations but the Ministers want to proceed with the figure of €75, which is a significant reduction from the original €175. They have given an absolute commitment that it will be reviewed. Revenue and the Department of Finance review every taxation measure every year and they will come back and report on it at that stage. That is the general extent of my response to the various points made.
I accept that it is not easy to introduce a new charge that was not there previously. We did not ask for Brexit but we have Brexit and we have to deal with the situation. That is why we have this legislation. We all wish we did not have to deal with Brexit or any of these problems. Issues came up an hour ago regarding an amendment to an earlier section of this legislation about the cross-Border initiative, which cannot happen because of Brexit. We might have to do something to compensate for the cross-Border scheme. Brexit causes problems and this is one of them. I understand what Members are saying. We would dearly love not to be here discussing Brexit legislation but the British voted for it. It was a democratic decision and they are leaving on 31 December. It is not of our making and we have to make the best of it. This is one of the measures that is part of the Brexit legislation. We would prefer if we were not here at all having this debate in the first place but, unfortunately, we are and we have to make a good fist of it. We will review it within the year and if it requires tweaking, amendment or app technology to assist the process, that will be taken into consideration by the Department between now and then.