Select Committee on Finance and General Affairs debate -
Wednesday, 26 May 1993

SECTION 84.

Question: "That section 84 stand part of the Bill" put and declared carried.

NEW SECTION.

Mr. Yates

I move amendment No. 143:

In page 108, before section 85, to insert the folowing new section:

"85.—Notwithstanding anything to the contrary anywhere, the 21 per cent, rate of VAT shall be reduced to 17.5 per cent.".

Our standard rate of VAT after this budget, with the abolition of the 16 per cent rate, is 21 per cent. As we know, the budget here preceded the budget in the UK. I believe there was an expection that Mr. Lamont the Chancellor of the Exchequer in Britain would increase their standard rate of VAT but he did not do so. There is now a very serious discrepancy in the VAT rate on most consumer products between Northern Ireland and the Republic. It is one of the few land borders in the Single Market where there is such a differential.

The reason for tabling this amendment and amendment No. 150, is that a number of items cannot absorb the 21 per cent VAT rate. This is because of diminishing returns in some cases and also because many retailers who cannot afford to pass on the increase have to absorb it. It therefore, has to come out of their margins which means declined sales, declined margins, rationalisation and job losses. I am very concerned that we now have VAT on a number of labour intensive items such as construction related products, VAT on clothing, and VAT on footwear for adults at this penal 21 per cent rate.

It is vital that we should be competitive at retail level, particularly in the Border region. The Minister, and his Department know, from the experience of the 1980s of the need to have dialogue with the UK authorities and I urge them to have this so that in next year's budget we can have an equalisation of the standard VAT rate.

I know the Minister will say acceptance of this amendment would cost a huge sum of money and it is not possible to take it on board. If I were arguing the case I would argue for particular products to have their VAT rate lowered and I will do so. I proposed this amendment for debate purposes so we could have a general discussion about the difference between the VAT code in a market which from 1 January 1993 is supposed to be unified and have absolutely no restrictions on people bringing in consumer products across land and sea borders.

This is ultimately a matter of competitiveness, it is a matter of jobs and there must be a commitment by the Minister to bring this VAT rate towards the rate in the UK. If the UK should go to 18 per cent, so be it. I am not putting forward the case that we can do without the revenue that would be lost here, I am putting forward the principle that we must have an equalised, not to mention harmonised, VAT rate. This year the position deteriorated further.

Mr. Boylan

I support Deputy Yates. Nationally, we are all aware of the consequences and the major disadvantage of having different VAT rates from the UK but in the Border region it is devastating. The Minister may have got that message from a number of deputations he met in relation to this. In the clothing industry the increased rate will have serious consequences. We saw the protest that was launched outside the Dáil in relation to the imposition of this 21 per cent VAT, compared to the 17.5 per cent north of the Border.

I am not opposed to cross-Border trade, in fact I welcome it. If we are to have meaningful relations between people North and South we must encourage trade, but, to use the very modern phrase, we must level the playing pitch. The goal posts have been moved completely. People living on the southern side of the Border, are at a disadvanatage of 4 per cent. We have imposed that burden on them and they are making gallant efforts to survive.

We had the enormous problem of the disadvantage in petrol prices down the years. Eventually, the message got home to the Government and when we restored parity we saw an immediate upsurge of business in the Border region and an improvement in our towns and villages. All that good work is being lost again. When people go across the Border for one item generally they travel 15 to 20 miles so it is a day's outing and they do a day's shopping. Other goods are purchased causing an ongoing loss to this country.

I ask the Minister to look again at the areas of clothing and concrete blocks and similar businesses. One gentleman, who appears to be a millionaire — he has bought out most of this city and other parts of the country — has achieved this on profit in sand and blocks and I congratulate him. The Chairman knows the person I am talking about. He has been able to achieve success because the local people within 50 miles of the Border cannot compete with him. It is as simple as that. They are at a total disadvantage, which is unfair. I ask the Minister to think again because whilst he may gain on the swings he is losing on the roundabouts, as there is a hidden loss that is not being taken into account.

Mr. Cox

I asked a question at our private briefing session, last week and I would like to thank the Department officials who prepared a note on VAT arising from that. I would also like to thank Deputy Yates for putting down this general amendment.

I take the point he made that nobody is naive enough to suppose the Minister can conjure up yet more figures out of a hat in order to reduce VAT from 21 per cent to 17.5 per cent.

A number of interesting questions on policy discretion arise from the note prepared by the Department of Finance and I would like to hear the Minister's opinion on them. The Single Market arrangements in relation to VAT agreed last October and implemented this year apply to a single standard rate which must be 15 per cent or more — for us that is 21 per cent — and one or two reduced rates. We have opted for one reduced rate of 12.5 per cent. The EC minimum would allow us to go down to 5 per cent but budgetary conditions require otherwise.

Taking those two rates of 21 per cent and 12.5 per cent and, of course, zero, on a variety of items also listed on this note, there is an interesting area of discretion which I am interested to hear some opinion on, that is what is called the parking rate. The parking rate is of at least 12 per cent — in our case 12.5 per cent — and it would apply to goods or services which were at a reduced rate on 1 January 1991. I do not think any of the lists I received relate to that time. Whatever was on the list at that time but was not on the reduced list as per last October's agreement is potentially capable of being put on a parking rate. The EC produced an October list of what is on the reduced rate. Some of the items at the reduced rate on 1 January 1991 were not on the EC's reduced rate which allowed discretion. Am I correct in interpreting it in that way? I would love to know what is on that list.

I understand that this year the discretion the Minister used for the so-called labour-intensive areas, the hairdressing, the garage services and so on, he used in respect of the list I described. If I understand it correctly the Minister has a discretion to continue that regime, potentially, subject to the budget, and so on up to the end of December 1996. In effect this would mean that from the budget of 1996 or possibly even 1997, he would be obliged to put those onto the standard rate at 21 per cent or the then going rate. As we work our way through this document and various amendments perhaps the Minister would indicate which actual reduced rates and actual goods or services are involved and to what extent they might come within the Minister's zone of discretion. He may say he has no budgetary discretion but I would like to know what is his zone of choice in policy discretion. As we reach individual items perhaps the Minister could signal if they are ones in which he has an EC discretion and if he is opting out because he cannot afford it. At least we would then know where he has discretion.

It is my understanding that because the October agreement last year at ECOFIN was designed to try to complete the Single Market but with a transitional arrangement up to 1996, all of this is likely to be on ECOFIN's agenda well before 31 December 1996 and the various ministries will be arguing for the ironing out of various creases that have arisen in the meantime. My guess is that while we are locked in at some level we are not locked in as hard or as fast as it might appear.

There are grey areas where the Minister can have discretion, at least around the edges, up to 1996 and beyond that, depending on the deal made in 1996, we do not know. That is an open agenda. I would like to know what are the goods and services in respect of which the Minister has an EC policy discretion, and whether he has exercised it or not, to have the rate of 12.5 per cent in respect of this year's budget or budgets between now and 1996.

Mr. Finucane

I would like to make a few observations in relation to VAT. I do not want to go over what has been said about adult clothing and footwear. We all know the quotas involved in that and the concern felt within the industry. At the time of devaluation clothing companies were already closing down and yet we had an increase in VAT.

There is one situation I would like to make the Minister aware of, although I am sure he is aware of a certain amount of it. It is something that is escalating and will continue to escalate because of the VAT rate on clothing and footwear. I refer to the growth of markets held in every town and village. People descend on the square. They have a permit in some cases, but not in all. They are almost nomadic. They move on to different locations selling clothes and shoes.

The Minister is probably aware that containers are going to England and the number is escalating. On Sunday morning in South William Street in Dublin people move in for those containers and filter out in the country. I understand from people in the business that that has escalated further since the increase in the VAT to 21 per cent. In relation to those people with containers who are buying their shoes and clothing in the UK, the point has been made to me that if the warehouses are full with shoes or garments, they do not mind letting go a huge job lot at a nominal rate. That is the type of merchandise which finishes up being sold around this country. If you visit a small market town and talk to reputable business people in that community, who have to compete with these people, they will tell you that if they are dealing in shoes there is no way they can compete.

I draw the Minister's attention to this issue. It is escalating and will impact on the retail business and also hit the manufacturers. There will be large job losses in that sector and I maintain it will be because of the punitive rate of VAT.

Mr. McGrath

I want to add my voice to what has already been said in relation to the VAT on clothes. It has been more than doubled in about 18 months; it has risen from 10 per cent to 16 per cent and then to 21 per cent. This is intolerable to the retail trade and it will have the effect Deputy Finucane indicated in relation to the manufacturing trade. It is something that has to be looked at very carefully. The retail trade is going through a very bad time.

I would like to deal specifically with the increase in VAT on concrete products, ready-mix and concrete blocks. I now what the Minister intended when he introduced that measure. It was to reduce the black economy and bring more and more people into the tax net, because by paying VAT at 21 per cent they could not claim a refund. They would be at a decided disadvantage against the registered contractor. My experience in my own area is that it is having the opposite effect. I spoke to a representative of a large concrete firm quite recently. He told me he was operating in a certain county but had grave difficulties making sales because they are only interested in buying the products "without the rabbit's ears", as they called it. The rabbit's ears indicated the V for VAT. He found that they were putting everything through the books and he was not managing the sales. Business was being taken up by the smaller companies prepared to sell their goods without VAT. In regard to selling ready-mix concrete in small job lots to farmers for yards or whatever, he was not succeeding in making sales either. The farmers were going ahead, buying the cement, sand and gravel, taking on dole labour and doing the work themselves. They were prepared to do that because of the difference in price involved. If you look at a sale of £1,200, say, for a load of concrete, you are talking about VAT of £252 on that. That is an enormous amount of money for somebody who will not be able to claim it back. The Minister's move in bringing the VAT to 21 per cent will have the opposite of the desired effect of reducing the black economy.

Ms. Keogh

I intended alluding to this under amendment No. 150, but as everyone seems to be talking on this amendment, I might as well get my spoke in. Quite frankly, I was going to concentrate on the adult clothing and footwear aspects of it. The point has already been made about the closures of business which, unfortunately, took place. At the time of the budget it highlighted the recession to some extent, but the last thing the industry needed was to have a VAT increase slapped on an industry that was hurting very badly. Some of them literally felt it was the death blow.

I will go now from one side of the industry to the other — the retail trade and particularly the smaller units. I am thinking of my own constituency with small retail units on very tight margins. They are absolutely savaged by what might appear to be a marginal increase in costs but obviously they have to be passed on to the consumer because their margins are so tight. Like everybody else, I got much lobbying on this issue, and if I did, the Minister certainly got boxes full of letters on it. The retail trade is pitiful in Dún Laoghaire with shops closing down along the whole of our main street. We are talking about employment. We are talking about small business people who are put to the pin of their collars to survive. Yet we are putting on another increase in charges and they cannot bear it. They have made the point very forcibly to me. All I can do is re-emphasise that to the Minister yet again and ask him to re-examine the issue.

Mr. B. Ahern

A number of issues have been raised and I will try to respond to them. I will try to prepare a comprehensive list for Deputy Cox, but we will get to that later. Items that could be parked but which we put at the standard rate in the list of 1 January 1991 are as follows: Telecom, adult clothing, telecommunications, auto LPG, spectacles and contact lenses, farm accountancy and farm management, services of auctioneers, solicitors, estate agents or other agents directly related to the sale of agricultural lands. Those we actually put on the parking rate were removable goods such as commercial buildings, building services in respect of non-house building, tour guide services, short term hiring of cars, boats, caravans, mobile homes and all the tourist facilities Deputy Yates was talking about earlier — tents, trailers and so on. General repairs and maintenance services covers a huge area. We had tended to say car repairs and repairs of electrical appliances but that is a very broad area. The employment involved here is all local employment and the services provided are all within the country.

I will make the point later about the difference between that and adult clothing. There is a big difference between all those services and adult clothing. Services consisting of the care of the human body tend to be known as the hairdressing area but there is a whole range of personal services. Services also include photographic services, jockeys, car driving instruction, routine cleaning of immoveable goods, which comes under the contract cleaning area. We will double check that later. That gives the drift of the area.

Deputy Boylan made a point about the taxes. I take his point on Border tax. The Deputy is aware that I spent a lot of time meeting Border Deputies and the trade because I was very anxious not to get back into that ball park again. I am very conscious of what we suffered before.

Mr. Boylan

What is the position in relation to concrete products coming from Northern Ireland?

Mr. B. Ahern

I will come back to that later. The tax induced differential of 3.5p in the pound as between North and South can probably be sustained on the vast majority, if not all, of the goods from those regions. In relation to petrol and drinks, we have been very careful. The main reason I kept excise duty on drinks and cigarettes this year was for Border reasons. I am very disappointed with Guinness who have broken ranks and who, because they believe it is an annual increase, have announced in the last few days that they are putting up their price by 2p. I got agreement from the city licensed vintners, the rural and city pubs and the trade generally. I did a deal with them. Guinness were part of that deal. I spent a long meeting in January discussing it. We made a deal, shook hands on it and Guinness were very much a part of that deal. The trade around the country voted on it and they voted on it in Dublin. Irish Distillers and Gilbeys, who were about to increase their price, pulled back and we had total agreement that there would be no increases in 1993 and, lo and behold, we reach the middle of May and for whatever reason — they said it was 12 months since their last increase — Guinness broke ranks.

The trouble is that as soon as one goes that way, the rest follow suit. I was hardly out from my office with the Guinness fax, on my way to complain bitterly to my colleagues, than I received a fax from every other company involved. Now we are back again on the whole merry-go-round. Is that the honour among the trade? I want to single out who has broken ranks. Guinness are a great company employing good people and so on, but how can they support this move? We were doing this mainly for the Border areas and for inflation generally. There was no increase in drinks, petrol or diesel in the Border areas. There was a reduction of VAT on bakery products and non-chocolate biscuits, which is very important. There is hardly a town in Ireland that does not have one or two bakeries. It is one of the areas where the small industry still survives. Some of them are only at the back of the confectionery shops, others are quite large, but they are there in great numbers and are huge employers.

I want to say also that Deputy Cox has correctly assessed the entire document. I do not want to claim credit for the brief but the Deputy got it absolutely right in his analysis of what the position is. We moved in a great number of areas from 21 per cent for confectioneries and 16 per cent which was the parking rate but was higher than the 15 per cent rate, as the Deputy explained and we brought all of those back to 12.5 per cent. The quid pro quo was that something had to be increased. As soon as you increase something all the focus is in the two or three areas.

I fully accept what Deputy Yates is doing. I am glad for the understanding that the cost to the Exchequer of £300 million is not something that I will lose a vote on because it is just down for explanatory purposes.

It is useful for us to reflect — Deputy Rabbitte did this recently — on what are the VAT rates around the community. In Belgium the rate is 19.5 per cent, Denmark, 25 per cent, Germany, 15 per cent. Greece, 18 per cent — here again I am talking about the standard rate — Spain, 15 per cent, France, 18.6 per cent, Ireland 21 per cent; Italy, 19 per cent, Luxembourg, 15 per cent, the Netherlands, 17.5 per cent, Portugal — there are still difficulties with their position because they apply an increase rate of 30 per cent but they have a rate of 16 per cent and of course the 30 per cent is now out of line — and the United Kingdom, 17.5 per cent.

I have outlined the areas of flexibility. A big factor in this — I do not want to raise this on the basis that I have come to any conclusions — is when you look at your budget flexibilities and, having been through two budgets, you go around the table looking to see where you can pick up the millions that can balance the exercise. I always come back to the zero rate items. I have to put myself in the position that as a Minister and TD I get something just under £60,000 a year. I am sure Deputy Rabbitte will tell me that in Tallaght there are people who are living on £3,000 a year and when they go into a shop to buy their packet of cornflakes they pay the same zero rate VAT as I do. For a whole lot of other items it is the same. My thinking is to look to these areas. Here you are caught between rock and a hard ball and you are looking at a range of items that are on the lower rate. I have not reached any conclusions on these matters but in what Deputies Cox and Yates are seeking, you have to look at these.

Any Miniser of any party in my position would have to start asking, on equity and employment grounds, if you really believe the arguments that people are putting to us. I have set up a working group on the clothing trade, which we are working with and I will deal with that later on. It has been very useful and I acknowledge their commitment. The group deal with fashion, the manufacturing end and all the other areas. People in the clothing area have actually told me they would rather the whole lot was 12.5 per cent, even though they set up this system with Revenue in 1984 about sizes and different rates of VAT. My mind boggles trying to follow this up and down. I have done this in great detail so it is a baptism of understanding. Forty per cent of consumption is either zero-rated or exempt and this means that the positive rates have to be much higher. Twenty per cent of the base rate is zero. I put that down for the reflection of the Committee, as I have done in a number of these matters.

Everybody has spoken about casual traders. I would like to say a few words about them. I accept that this has become a growing phenomenon over a long period. Deputy Finucane has outlined this correctly. With the introduction of the Single Market movement of goods between countries of the European Community it is no longer subject to the regular border controls which is where this starts. Members will recall that I signalled this very clearly in the discussion last year. Everybody thought it was a great idea but I knew this would happen.

The Revenue Commissioners are concerned that casual traders, whether established in another member state or here, are subject to the same VAT regime as other traders. Already this year the new powers we introduced last year when I was making these arguments have been successfully used by the Commissioners. One sector to which attention has been drawn today is the large public sales by casual traders in hotels, sports halls and other premises which are hired for the day. In every such case intervention by the Revenue Commissioners has meant that either the full VAT liability was successfully collected or that the sale was stopped. The Revenue Commissioners have shown me the Leinster Leader in which there is an announcement stating that such traders will be prosecuted.

Mr. Boylan

Does that apply nationwide?

Mr. B. Ahern

No. Wherever there is an example we would be glad if it was communicated to the Revenue Commissioners. I will come to it in detail later. Where such sales continue the Revenue Commissioners will take all necessary action to ensure that the VAT properly due is collected. When we brought in these additional powers last year many people regarded them as draconian and said it would put everybody out of business. We are now being thanked for introducing such powers.

The new powers are also being employed in relation to casual street traders who operate largely in the Border counties, but also throughout the State. Arrangements are in hand to visit various markets, check the VAT status of each trader, insist on VAT registration, where appropriate, and follow up by collecting the tax due in whatever manner is appropriate, including, where necessary, seizure of goods. They have all the powers. The Revenue Commissioners love this kind of work. On 14 May an official visited the market in Carrickmacross, County Monaghan——

(Interruptions.)

Mr. B. Ahern

The total number of traders at the market was 53 of which 12 were from Northern Ireland. These ranged from traders who had relatively large amounts of stock — two were estimated as having more than £2,000 worth of stock, who were registered for VAT — to traders selling small quantities of low value and low quality goods. Each trader was asked for appropriate details of his operation, given an application form for VAT registration and instructed on the precise nature of the powers available to the Revenue Commissioners in the event of failure to comply with all the VAT regulations. It was done one to one, that is the way they operate.

The Revenue Commissioners were accompanied by an official from the joint investigation unit of Social Welfare and Revenue, who was on hand to check whether any social welfare payments were claimed illegally by any stallholder. I have given the Carrickmacross example because I thought it would strike a chord with Deputy Boylan. It will be repeated in other Border counties and throughout the State by the Revenue Commissioners.

A number of UK promoters were involved in bringing over casual traders to sell various lines of goods since January. I took an interest in them because they were using my constituency on a Saturday at the Point Depot and blocking the city with traffic. They are now moving because the Revenue Commissioners stepped in. We have been advised that, contrary to the complaints referred to about the UK traders selling clothes and T shirts their view is that they got it wrong. They should have brought over the empty trucks and bought all the clothes here in Dunnes Stores, brought them back and sold them in the UK. Having tried it for a month or two, they could not compete with the trade here. That point was made by Deputies McGrath, Boylan and others.

The trade told me that a reduction on VAT on concrete products would help evasion. We have now analysed it at great length in conjunction with the trade and the larger companies and I will abandon the 21 per cent on the blocks and go back to 12.5 per cent. The experience has given me a lot of knowledge about the black economy and we will diligently pursue it. It would have been far better if we had been told what was going on before we levied the tax at 21 per cent. The logical conclusion is that everything should be at 21 per cent but the level of abuse, avoidance or evasion — every time I say avoidance or evasion I get into an academic argument with the tax avoiders — is massive.

(Interruptions.)

Mr. B. Ahern

There were abusers even when the levy was 12.5 per cent. At least we know the position and we will follow that. In deference to the legitimate people who made the arguments, my idea was not to put them out of business but to try to close the others.

Mr. Boylan

From when will VAT be reduced?

Mr. B. Ahern

From 1 July.

(Interruptions.)

Mr. Boylan

In relation to Carrickmacross did Revenue collect any VAT or put casual traders out of business? It is relevant nationwide but particularly in my constituency, because, regardless of ratepayers and established businesses, these people move in and take over a town, even though generally their goods are shoddy. Have any of these people been closed down? Does the Minister intend to continue this venture?

Mr. B. Ahern

Yes, as long as resources permit. The traders are not obliged to pay VAT at the time of the sale as casual traders but they move from one place to another. They are at Tralee and the Galway Races. We can explain the position and if they continue to flout the law they will be punished. I do not mind the traders moving around provided they stick to the rules. The main control on that is seizure of the goods and that is the one that we will use. It is the easiest.

Mr. Boylan

The Minister has not done that yet.

Mr. B. Ahern

No, not yet. It is a question of explaining the position. If I come in with a stick you know what will happen: everyone will be on to me next week because I will catch the wrong person.

Mr. Cox

In my constituency there was a gentleman from the UK who had an occasional trading licence. He had an extensive range of goods — electrical goods, golfing, porcelain, clothes, and so on. I am glad to say that the Revenue Commissioners use the law to the fullest extent and insisted on payment upfront in respect of any potential tax liability and so on. I congratulate them on their accumen in applying that law. I wrote to the Director of Consumer Affairs about it because in the case of some products the caveat emptor, or buyer beware slogan, should have been uppermost in the consumer’s mind. It is worth taking them on vigorously.

I know the Minister does not want to be misquoted as being a proponent of the case that we should abolish the zero rate, so, in equal measure, I do not wish to be misquoted as wanting to encourage him down that road. We spoke today about disabled drivers so I am not talking about a universal blanket abolition but taking the generality of goods subject to VAT at a zero rate, how much is written off the VAT base as compared with having them at a reduced rate? If the Minister were to consider venturing down that road at some future date in relation to foodstuffs and so on, the key issue which would be of concern to most people would be the position of those on fixed incomes — people in receipt of social welfare payments, pensioners on fixed pensions and so on.

The typical way of measuring this, if we were to do it, would be to ascertain its effect on the consumer price index and increase it by the amounts we planned to give those in receipt of social welfare payments.

I raise this issue because were we to have a household budget survey on social welfare recipients or the old aged pensioner on the fixed income we would see that the proportion of expenditure on basic foodstuffs would be higher than the total spent by households in general. Therefore, a simple CPI adjustment would not compensate for it. I wonder whether there has never been any work done on looking at the negative side of this in household terms for vulnerable households where the CPI would be an inadequate yardstick of measurement because it is too wide an average. My questions are: first, how much has been written off through this and, second, has any work been done on the point I raised?

Mr. Yates

I listened to the Minister but I was not clear whether he had any dialogue with the UK authorities on moving towards an equalised VAT rate. I urge him to have such talks with the Chancellor to try to move in tandem. I would like to ask the Minister some questions. He said the cost of moving from 21 per cent to 17.5 per cent was £300 million and I should like to know if each per cent is divided pro rata by 3.5 per cent what each per cent or half per cent will cost.

Mr. B. Ahern

It is approximately £85 million.

Mr. Yates

I welcome the change the Minister has made in relation to concrete blocks and other construction products. I was interested to hear that the CIF asked the Minister to do this because the CIF asked me to table amendments to change it.

Mr. B. Ahern

In fairness, we all change.

Mr. Yates

I accept the bona fides of it and I welcome it unreservedly. The Minister quoted the other European standard rates of VAT. It is like Deputy Cowen saying that telephone calls to Thailand are cheaper but if you ring your next door neighbour, they are dearer. The point I am trying to make relates to the fact that there are countries with which we have a principal trade. The UK VAT rate is the most important one and all other comparisons pale into insignificance.

I note what the Minister said about casual traders and I encourage him to level the playing pitch for all retailers in that regard because many retailers have to pay rates to local authorities while casual traders do not.

I am very interested in the point relating to Guinness and the price increase. It is a serious breach of faith by a major drinks company. There has been no increase in taxation for some years on drink products, that is, mainline beers and spirits. If we look at the tax treatment of other areas it would have to be looked at in the context of what price increases took place over the past two or three years. Not only do we have those but there is a tendency for any increase to the consumer to be at least five pence. Guinness's decision has to be condemned out of hand as anti-consumer and it bodes ill for the future tax treatment of their product if they disregard such agreements.

I do not think we should spend too much longer debating amendment No. 146. I ask the Minister, between now and next year's budget, to consider some phased movement in conjunction with the UK authorities to have an equalised rate. They have huge Exchequer problems not only in terms of the balance of payments but also in terms of their fiscal situation that will have to be rectified by some tax increases. We should urge them to increase their VAT rate.

Mr. B. Ahern

Each 1 per cent on goods presently zero rated would bring in roughly £30 million. Introducing VAT on food would be a regressive step. Those on lower incomes spend a higher proportion of their income on zero rated goods and account would have to be taken of what would be given back to them — for example, some of the £30 million would be given by way of child allowance or in some other way. Some preliminary work is being done in that area.

As regards the point made by Deputy Yates, we did not have formal discussion with the British authorities. We have ongoing discussions with the Treasury and have working groups with them all the time. They will have a budget in December. They are moving to the calendar fiscal year in 1994. I have no idea what they are going to do on that matter. Deputy Cox made the point earlier that we are now operating the system for this year. Next year there will be a review of the scheme. The rates will change at the end of 1996. I am sure a number of issues will have arisen by then. We have a flat rate for the bloodstock industry which is proving very useful. Again, in those kind of areas we talk to our UK colleagues. Sir John Cope, from the Treasury side was the person we were dealing with during the UK's Presidency of the EC and the fact that he came from Ascot was not unhelpful.

Mrs. Doyle

He delivered.

Mr. B. Ahern

He was very helpful and put himself under a lot of pressure. Under EC rules the setting of rates remains at the discretion of member states so long as the Community minimum rate is observed.

One point which is not always appreciated but is very important from the point of view of the tourist industry is that the UK do not have a reduced rate. Many items that are on the 17.5 per cent rate there are on the 12.5 per cent rate here. This helps not only the tourist sector but also other services and that should not be forgotten.

Mr. Finuncane

The Minister mentioned earlier that the clothing and footwear industry said a 12.5 per cent rate would make life easier. At present the rates are zero and 21 per cent. What would be the financial impact of everything being at 12.5 per cent? Would there be a loss of Revenue?

Mr. B. Ahern

I would not say it is the agreed view of all the industry, because naturally it depends on what sector of the industry one's business is in. If it is in the children's end exclusively, or almost exclusively, one would not see it that way. However, if one were involved in adults' clothing exclusively, then there would be no difficulty in arguing for it. The industry are not agreed on this but we have opened what is an interesting discussion on the matter, which has proved to be no harm.

Amendment, by leave, withdrawn.

NEW SECTION.

Mr. Cox

I move amendment No. 144:

In page 108, before section 85, to insert the following new section:

"85.—The Principal Act is hereby amended by the substitution of the following section for section 37:

‘37.—Where a taxable person not established in the State supplies goods or services, the Revenue Commissioners may, where it appears requisite to do so for the protection of the revenue, deem a person who—

(a) acts or has acted on behalf of the taxable person in relation to such supplies, or

(b) allows or has allowed such supplies to be made on land owned, occupied or controlled by him to have made such supplies in the course or furtherance of business from the date of service on him of a notice in writing to that effect, subject to the application of the appropriate VAT exemption limit for the supply of goods or services in respect of the taxable person in question who is not established in the State, and subject also to the proviso that the Irish tax resident deemed to be potentially liable shall not be liable for the aggregate supply of goods or services unless in each separate case the VAT liability exceeds the exemption limit.'.".

This amendment arose from dealing with people in the Cork Opera House, the board of the National Concert Hall and the new theatre in the University of Limerick. The event was triggered by the Revenue Commissioners sending out letters to people last year. The theory is as follows and I will pick an example. If Michael Jackson did a concert in Ireland he is supplying a service. He would get, say, £500,000 or £100,000. He does not pay any VAT, he goes off home as happy as Larry and he puts his money into an account. He does not need a tax amnesty as it is probably in a tax haven anyway. If it is the case that Michael Jackson did not pay the tax here as the potentially liable person, I understand the law to be that the promoter or whoever owns the grounds is then deemed to be potentially the liable party.

To be perfectly honest, I would not have a lot of sympathy for Michael Jackson, Pavarotti, Placido Domingo and so on if they have to pay VAT. They are big money spinners. However, much of the activity that goes in the Cork Opera House and so on is a much smaller fare. They would be concerts on a smaller scale, and I am not talking about their cultural content. The Cork Opera House gets a subvention from a variety of sources, including the corporation and the fear is if they become liable for the VAT of the Pavarottines rather than the Pavarottis who turn up, or the smaller acts, it could make the difference between having them and not having them at all.

Each person is entitled in VAT limit terms to be unregistered for VAT — I may have the wrong phraseology — if the services are £15,000 or less in a year. I am not talking about the Michael Jackson end of the business but smaller acts in terms of the fee they get. If the performer is exempt from paying VAT the Revenue should not chase Cork Opera House, the new theatre in the University of Limerick or the National Concert Hall for the money.

Then the question arises if you had ten Pavarottines playing ten times in the year instead of once would you be liable because you were allowed £15,000 for one? It seems to me that if they were ten separate events they should be entitled to ten separate exemptions. Many people received letters from the Revenue Commissioners telling them that they were liable to pay the VAT. There should be some way of addressing it. I acknowledge where the State's interest lies in terms of some of the larger blue chip concert events but I would like the Minister to make due allowance for the smaller end of the scale.

Many of these halls operate on a shoestring. Cork Opera House gets a big subvention from local authority funds and without that it would have closed down. They do not need the Revenue Commissioners demanding X per cent for every small non-Irish supplier of services who does not pay VAT.

I hope the Minister can find some way of putting in a bar to trap what he wants to trap but does not end up closing the door on many of the lesser but useful concert activities that take place.

Mr. B. Ahern

On the application of the threshold, EC rules require the removal of the threshold in the case of suppliers based in one member state delivering supplies in another member state. Otherwise the supplier would get the benefit of the threshold all around the community and there would be a major loss of VAT revenue.

The proposed amendment of section 37, which was amended last year, ensures that the VAT liability of persons who are not established in the State is secured. This was necessary in view of the abolition of the custom controls and VAT at the point of entry. The section provides that an Irish person can be made liable for the VAT payments of foreign based traders in certain circumstances, for example, if he allows the foreign based trader to make supplies on land owned by him. The proposed amendment is intended to ensure that where more than one unestablished trader is making supplies at a particular premises the VAT registration threshold should apply to each trader individually.

Mr. Cox

The basic politics of the matter is that I was trying to make sure we kept the wolf from the door in some of the places I described.

Mr. B. Ahern

The amendment is based on the assumption that the threshold applies to traders not established in the State and the section says that, as and from January, where a person is not established in the State the normal thresholds do not apply. The abolition of the thresholds for non-established traders follows an amendment to the sixth VAT Directive and reflects that a registered trader in one member state cannot be a small trader in another member state. The amendment proposed is not necessary.

Mr. Cox

The letters were received so they are real and the demands are potentially real. Can the Minister explain the VAT arrangements for a Michael Jackson versus Bertie and the anorak performance?

Chairman

Is Deputy Cox not aware that the Minister sold his anorak?

Mr. B. Ahern

I did not sell it; I gave it to charity.

Mr. Cox

The Minister is a great act. He should take it up. I find it much easier to follow a concrete example.

Mr. B. Ahern

If we take a Joe Dolan who is based in the country the threshold of £15,000 applies.

Mr. Cox

Take Mr. X who performed in the Cork Opera House but did not pay his VAT bill, is the Cork Opera House liable?

Mr. B. Ahern

VAT is chargeable on the fee charged by the performer. If Michael Jackson preforms in the Cork Opera House and pays no VAT, Cork Opera House would be liable for VAT. If they apply and say they have such a concert on such a day, if a section 37 order is served on them they know they have to pay VAT.

Mr. Cox

The section 37 order would be served in advance.

Mr. B. Ahern

It would be served on their querying whether they would be liable for VAT? They decide whether it is worth going ahead with the concert.

Mr. Cox

The theatre in the University of Limerick or the Cork Opera House operate on tight margins and if section 37 orders are served on them they will not be in a position to bring in performers. I am not worried about the Michael Jackson concerts. Good luck to you if you can get 12.5 per cent or whatever out of live performances in cases like that. Is there any way of operating the threshold so that it applies to some events and not to others?

Mr. B. Ahern

The Deputy wants it to apply to the Michael Jacksons but not to some group who are operating on a low cost basis.

Mrs. Doyle

They would not be commercially attractive outfits but more educational.

Mr. Cox

I am not pressing the wording but if the Minister could look at this for Report Stage——

Mr. B. Ahern

If it is a big name performer there is no problem. The law is that the supplier of the service is liable to VAT in the country. In the case of it being a profitable event they make a commercial decision and decide whether to hold it. The Deputy is saying that in the event of it being of a cultural nature they should not be liable.

Mr. Cox

People spend fortunes buying tickets for big concerts. At the same time people whinge about going to the Abbey and paying one-third the price for tickets. Clearly there is a range of prices that the market will bear for some classes of cultural activity, but pop star events get away with murder.

Mr. B. Ahern

VAT is not chargeable on the admission fee, sponsorship or grants. It is chargeable on the performer's fee. I take the point that the performer's fee might be the——

Mr. Cox

This amendment may be badly constructed. I am not recommending it as a piece of law, but there is an idea behind it which is not unreasonable.

Chairman

What does the Deputy wish to do about amendment No. 144?

Mr. Cox

I am prepared to withdraw it and hear what the Minister has to say on Report Stage. I know he is not in a position to say that he is doing X or Y.

Mr. B. Ahern

I am concerned about how to get around the fact that we must have regard to the thresholds.

Amendment, by leave, withdrawn.

Section 85 agreed to.

Progress reported: Committee to sit again.

The Committee adjourned 6.5 p.m. until 10.45 a.m. on Thursday, 27 May 1993.