Subject to the Minister's statement.
SECTION 148.
Question proposed: "That section 148 stand part of the Bill".
The new taxable element on intra-Community trade in the acquisition of goods is introduced into section 2 of the VAT Act by section 146. Section 148 (3) (a) defines a new concept. Section 148 (3A) (1) deals with intra-Community acquisition of goods other than new means of transport. There are three essential elements. First, there must be a supply of the goods by a VAT registered person in one member state; secondly, the supply must be to a person who is not a private individual in another member state, and thirdly, the goods must be transported to another member state either by the supplier or the purchaser. When all the above criteria are met, then an intra-Community transaction has taken place. An acquisition can occur even where the purchaser is not a VAT registered person. An intra-Community acquisition can arise where the purchaser is an exempt body, for example, a bank, an insurance company or a non-taxable entity.
If you do not have a VAT number for reasons of evasion the supplier has to pay it?
That is correct. The other exception is a non-taxable entity, a Government Department or a local authority. In these cases, where more than £32,000 worth of goods per annum are acquired from other member states, the intra-Community acquisition is subject to tax and the purchaser must register and account for VAT on the acquisition.
I want to explore this a little more. An intra-Community acquisition has taken place in the circumstances which the Minister has outlined and that particular acquisition will be subject to VAT in the country of import, or acquisition, as we should put it now. Private individuals are exempt from that. I want to explore the practicalities of what will happen when private individuals are exempt. Quite clearly, in circumstances like ours where we have a land border with Northern Ireland, this will have a very strong leverage effect on the whole issue of harmonisation. If private individuals can cross the land border, or indeed go on the ferries, to purchase a range of goods which they can import and which are not subject to VAT, that constitutes a danger if our rates of VAT on specific items diverge dramatically from the rates in neighbouring countries. Would the Minister indicate what is the standard rate of VAT in each of the other EC countries? It is 17.5 per cent in the UK. What are the standard and lower rates across the other EC countries? Could he also give an indication of those countries that have a lower rate? Does it range between 4 per cent and 9 per cent or is it fixed on a particular point? How far has this lower range rate gone?
Would the Minister also comment on the extent to which competition pressure, which will force VAT rates to harmonise, will force a movement upwards on the zero rate items. We are all talking about the preservation of the VAT base in this country but something in excess of 40 per cent of all consumer spending in this country is on zero rated goods. It may be even 44 or 45 per cent. A huge tranche of consumer spending is exempt. Is it the official view that the forces of competition will tend to keep all these items at zero rate or that they will tend to move them upwards? It is quite clear that there is very little room for anything other than equalisation between Northern Ireland and ourselves because so many people will find it easy to cross into Northern Ireland in private cars and simply bring in a whole range of items. In relation to once-off purchases, there will no longer be excise duty on television sets and videos. What is the potential for buying a colour television set or video recorder in Northern Ireland or in the UK and bringing it in here? What about the non-exciseable goods such as lawnmowers, furniture or expensive clothes? Will there be merit in taking the family to Belfast to buy clothes? How will it affect the different sectors, clothing, footwear, household goods, white goods, brown goods, and the non exciseable goods, particularly in relation to the UK? Perhaps the Minister would indicate the relative rates, across a range of goods, for France, Belgium and Holland. What kind of patterns does he see emerging and what are the fears of the Revenue in this respect? Where do they think the holes will have to be plugged at the earliest possible date?
The first question Deputy Noonan asked was about VAT rates in other countries. In comparing the level of Irish VAT rates with other countries, regard must be had to the wide coverage of the zero rate in this country. It is approximately 20 per cent of the total base, which is substantially higher than any other member state with the exception of the UK and Portugal.
How is the base calculated? What do you mean when you say 20 per cent of the base?
All consumer expenditure in the country. That is calculated by a formula. It is a CSO statistic.
Does that include exports?
No.
It is just the domestic consumption?
Domestic consumption in the member state.
I thought it was higher. That is why I am questioning the base.
No, there is no VAT charge on exports.
I thought perhaps you were including exports in the calculation of the base because I thought the figure was about 40 per cent.
The exempted base is 17 per cent because things such as banking and insurance are also exempt. If you add in the exempted base——
As well as the zero base——
Is that how Deputy Noonan arrived at his figures?
What is the total of the two?
It is 37 per cent.
The combination of zero rated and exempt categories is 37 per cent? That is nearer to what I had in mind.
Yes. But the exempted base includes banking, insurance, services and so on.
You are talking about food stuffs and childrens' clothes.
Those are all consumer items and are in the zero base.
What about animal feeding stuffs, pharmaceuticals, oral medicines and so on?
Food, childrens' clothing, footwear, oral medicines, books, medical aids are all zero rated.
And what is exempt?
The ones that would be excluded are banking, insurance——
All kinds of medical and dental supplies?
They are exempt in all EC countries.
Will there be a movement to amalgamate the exempt rate and the zero rate?
No.
Is there not an EC rule that there cannot be any further exemptions?
There can be no further exemptions but they are not going to amalgamate the two categories.
The zero rate is a matter of domestic policy in each country.
It is just that our zero rate has a far higher base than other countries.
Thirty-seven per cent of all consumer spending is not VAT rated.
I will give you the note on it. The post-1992 VAT regime to be adopted in relation to rates is not that originally proposed by the Commission, the dual rate structure comprising a standard rate in the range of 14 to 20 per cent and a single reduced rate in the range of 4 to 9 per cent, which applies to a very limited range of goods and services. Instead, the ECOFIN agreement of 24 June 1991 adopted a more flexible rating structure than was originally envisaged by the Commission and one which enables member states to take varying approaches under the new regime, depending on budgetary and other circumstances. The main feature of the new rates structure is that a single standard rate of at least 15 per cent will apply to the generality of goods and services. Member states have the option of applying one or two reduced rates, subject to a minimum rate of 5 per cent. This reduced rate option is confined to a specified list of goods and services. Member states, which on 1 January 1991 applied reduced rates of less than 5 per cent, including zero rates, can retain, at least until the end of 1996, such extra low rate in the new structure. It is a matter for the member states themselves to set the actual rates to apply subject to the Community agreed minimum. This agreement could, therefore, result in a single rate, two rate or multi rate system depending on the policy of individual member states. The VAT rate changes adopted in the last three budgets are perfectly consistent with that structure as the categories increased to 16 per cent this year are ultimately destined for the standard rate.
As regards the rates in other countries — Denmark is the highest with rates of zero and 25 per cent; France has rates of 5.5 per cent, 7 per cent, 18.6 per cent and 25 per cent; Belgium, zero, 1 per cent, 6 per cent, 17 per cent, 19 per cent and 25 per cent; Netherlands, 6 per cent and 18.5 per cent; UK, zero and 17.5 per cent; Germany, 7 per cent and 14 per cent; Italy, zero, 2 per cent, 9 per cent, 19 per cent and 38 per cent; Ireland, zero, 2.7 per cent, 10 per cent, 12.5 per cent, 16 per cent and 21 per cent; Luxembourg, 3 per cent, 6 per cent and 15 per cent; Spain, 6 per cent, 12 per cent and 33 per cent; Portugal, zero, 8 per cent, 17 per cent and 30 per cent; Greece, zero, 3 per cent, 8 per cent, 18 per cent and 36 per cent.
As you can see, there is a huge divergence both numerically and in rates but I think the point——
Can you identify which of those is the standard rate?
I will go through them quickly: Ireland, 21 per cent; Denmark, 25 per cent; France, 18.6 per cent; Belgium, 19 per cent; Netherlands, 18.5 per cent; UK, 17.5 per cent; Germany, 14 per cent; Italy, 19 per cent; Luxembourg, 15 per cent; Spain, 12 per cent; Portugal, 17 per cent and Greece 18 per cent.
The rates which are non standard are on a very small range of items?
They must be on footballers.
No, they are on luxury products. From 1 January next there will be one standard rate which must be greater than 15 per cent, so the high rates in those countries will have to move.
What is the recommended rate?
It cannot be less than 15 per cent but there is no ceiling whatsoever.
There is no ceiling? There will be.
Lord Cockfield had the first proposition, but Mme. Schrivener was a better economist. It is not really more flexible.
It is not?
It is not really. If there is a set minimum of 15 per cent for the standard rate and the borders are taken down, competition will force everybody down to within two points of that.
Yes.
It will have to. On the face of it it looks more flexible but in practice it is more rigid.
Mr. Ahern
I agree with you on that. Deputy Noonan made a point about competition and the way it will pan out. As we have done in every budget for years here, we will have to watch just what happens in those directly around us. I am not going to discuss the 1993 budget now but it is hard to see how we can make much progress over the next few years, with all the other changes. That decision can be forced on us by what happens in neighbouring states.
We are constantly having discussions on VAT and competitiveness. The name of the game is to be competitive. Competition will have its effect. To take the example which Deputy Noonan used, of a husband and wife who go to Belfast to dress the children for Communion and Confirmation, the answer to his question at the moment, is "no".
You could run boats from France to here and fill them.
They tried that for a while. They are having difficulties with the boats and planes.
Just in terms of the retail price of clothing and its quality. This country is far more competitive than most other Community countries.
We may have been at a disadvantage as regards products in days gone by but that is not the case now. It is a question of labour costs and unit costs, it is a competition argument. That is why, in this city, within one hundred yards of us here, international shops are moving in and paying massive prices to lease and rent properties. That is a changed position. To answer Deputy Noonan's question, we are all right now, but each year an assessment takes place within the Department, in the budget division, where they spend a considerable amount of time just watching precisely what room exists for manoeuvre up or down or for maintaining the status quo. That is a very carefully balanced exercise which is undertaken within the Department.
Could I ask the Minister, in relation to section 148 on intra-Community acquisition of goods, if the definition of goods include services? It is not clear. Perhaps it a separate section?
It is a separate section.
I will hold my question until then.
The last exchange reminded me of the ambition or dream of a former member of the Dáil who foresaw Ireland becoming a great shopping Mecca as had happened in various cities in Canada. We were to have people coming on week-end trips from all over the world.
A number of our prestigious hoteliers last year brought Icelanders, Germans and Danes here in great numbers from 21 October right up to 8 December.
For shopping?
The package was for four days in a hotel, but it was sold and advertised as a shopping holiday.
That is great.
Mr. M. Noonan (Limerick East)
There were French tourists in our part of the country last week and clothes were being bought all over the town, high quality clothes.
This is not a matter for this debate, but it is considered, in the international clothes world, that we have some of the best designers in the business in Ireland. Deputy Flaherty would know far more than I would about that.
Not as much as I would like to. I hope my opportunities will improve as I get on in life.
Am I right in understanding that the zero rate will expire in 1996 and at that stage we must move to 5 per cent on children's clothing and footwear and all the other items. Am I right or did I mishear that?
Whatever about the possibilities of that happening, at this stage the only commitment is to review in 1995. I think the pressures in the year's ahead will be to move away from zero per cent, particularly given the figures I cited earlier of the base we actually have on the zero rate.
The Minister mentioned medical services and supplies were free of VAT but medical equipment is not. Is that not right?
No, medical equipment is not.
Is that something we could move the boat out on? It certainly comes up as a serious issue in charity fund raising for equipment for hospitals.
I removed it, in the budget, for charities. There were a few conditions attached to that, as usual, but they were not excessively stringent. Where money is raised for medical equipment in a bona fide way, for charitable purposes, where people on the street collect for the local child, that is now exempt. The main condition on that matter is that the item has to be over £20,000.
Can I ask the Minister if the EC single currency will affect the VAT rate, when it comes into operation?
To refer to Deputy Noonan's point, it will intensify competition. It could have that effect.
What about goods coming in from third countries? Would they be treated on the same basis?
There is no change in that.
Will there be tariffs on goods coming from EFTA countries or will they be treated like Community goods?
They would be third countries for VAT purposes.
There is no change.
No change.
In terms of the practical application would goods coming in from Sweden be treated in the same way as goods coming in from France for VAT purposes?
No. VAT would be paid on them at the point of entry.
——as under the present regime. They are de facto in the Community as of now.
So as not to mislead Deputies, let me say the VAT will be paid at the point of entry but for EFTA countries there will be no customs tariffs.
There is still VAT at the point of entry?
Yes.
Question put and agreed to.