I am advised by the Revenue Commissioners that the transport of passengers and their accompanying baggage is exempt from VAT in Ireland under paragraph 14(3) of Schedule 1 to the VAT Consolidation Act 2010. In this respect, services provided by the coach and bus sector are exempt from VAT. This means that a person who provides a bus or coach service does not register for VAT and does not charge VAT on the supply of their services. This also includes the hiring of a bus or coach with a driver. Persons who are exempt from VAT cannot recover VAT incurred on goods and services incurred in relation to their business, such as fuel, tyres and mechanic charges, used for the purposes of the person’s coach and bus service. UK passenger transport operators who establish their businesses in Ireland are subject to the same VAT rules as Irish operators. They are exempt from VAT and not zero-rated, and as such not entitled to deductibility in respect of VAT incurred on items such as fuel. In addition, UK passenger transport operators who are not established in the State are not entitled to any refund of VAT incurred in this State for the purposes of carrying out passenger transport activities, whether that service takes place wholly or partially in the State or whether it takes place wholly outside the State. I, therefore, cannot agree that a significant competitive advantage is being handed to operators in Northern Ireland.
VAT law in Ireland and the UK must comply with the EU VAT Directive. As passenger transport was exempt in Ireland on 1 January 1978, it is possible under the VAT Directive to continue to apply that exemption. As passenger transport services were charged at the zero rate in the UK on 1 January 1991, the UK are entitled to continue to apply a zero rate to passenger transport services. It is not possible under EU law for Ireland to apply a zero rate to such services as we did not apply a zero rate to them in 1991.
With regard to applying the 9% VAT rate to the supply of passenger transport services, I would point out that while it is possible under the EU VAT Directive to introduce a charge to VAT, at a reduced rate, on passenger transport services, Ireland has traditionally exempted such activity from VAT and this reduces the cost of those services for both the providers and the users of transport, including public transport. What must be remembered is that the cost of goods and services supplied by persons who are exempt from VAT is always lower than if those persons were subject to VAT, despite the fact that they cannot claim VAT on their inputs.
