The Deputy will be aware that the Finance Bill introduces an amendment to the VAT Act 1972 that will reduce the VAT rate applicable to non oral contraceptive products from 21% to 13.5%. This is a significant reduction in itself which will take effect from the passing of the Finance Bill. It is hoped that this measure will address concerns raised by the various health bodies.
In relation to the scope for further reduction of the VAT rate applicable to such products, the position is that the scope for reducing or removing the VAT rate applicable to any good or service is determined under EU VAT law, with which Irish law must comply. Under EU VAT law, it is not possible to introduce new zero rates of VAT, as we can only retain the zero rating that was in existence on 1 January 1991. As non oral contraceptive products were not subject to the zero rate on 1 January 1991 it would not be possible to apply the zero rate of VAT to condoms.
As the Deputy suggests Member States may have up to two reduced VAT rates of not less than 5 per cent for a specified number of goods or services which are set out in Annex III of the EU VAT Directive. Contraceptive products are included in Annex III. Ireland in common with the vast majority of EU Member States operates a single reduced rate.
Even though EU law does provide for the introduction of a second lower reduced rate of 5%, such a move would have major structural implications for the VAT system and I do not propose to radically change our VAT system structure for this purpose.
Those calling for reduced consumption taxes, should be aware of the numerous determinants of price that explain the price variances across the EU. The level of VAT in practice only plays a small part in determining the price of such products in each Member State. Notwithstanding the above it is hoped that the VAT reduction introduced in the Finance Bill will lead to lower prices, and I hope that the retailer groups which were part of the campaign for the reduced prices will both reduce prices in line with the VAT reduction and look at their own pricing structures.