Dáil Éireann Debate, Tuesday - 19 May 2015
105. Deputy Pearse Doherty asked the Minister for Finance if he will provide the individual measures which constitute the value added tax policy gap; and if he will provide the potential revenue foregone as a result of each measure. [19189/15]
View answerAs the Deputy is aware, the Value Added Tax policy gap measures the additional revenues that could in principle be collected if a uniform rate (i.e. the standard rate, which is 23% in Ireland) applied to all consumption, thereby eliminating the effects of reduced rates and exemptions.
Ireland operates a number of reduced VAT rates and exemptions which influence the size of Ireland's VAT policy gap. In this regard, VAT in Ireland is not purely treated as a revenue collecting mechanism. Ireland's VAT rate structure has clear social (e.g. 0% on food etc.) and economic (e.g. 9% on tourism related activities) goals which are in line with the EU VAT Directive.
The cost associated with abolishing exemptions and reduced rates of VAT would depend on the level at which the standard rate is fixed. At present the standard rate is 23%. However, it would in theory be possible to radically reduce the VAT policy gap on a revenue neutral basis - e.g. the Tax Strategy Group paper on VAT prepared in advance of Budget 2015 (available on the Department's website at http://finance.gov.ie/sites/default/files/14.04%20Selective%20VAT%20Issues.pdf) estimated that a standard rate of 15% (the lowest level permitted under the VAT Directive) could be achieved on a broadly revenue neutral basis by merging the zero, 9%, 13.5% and 23% rates. However, this would involve applying VAT to food, children's clothes and oral medicines as well as raising the VAT rate on a range of other areas of consumption such as fuel and hospitality services.
The cost of maintaining zero and reduced rates in the context of leaving the standard rate at its current level of 23% is set out in the following table. This is a straight line calculation and takes no account of changes to spending behaviours.
|
Rates |
Amount |
|
Zero rate items |
€2.1 billion |
|
9% |
€1.8 billion |
|
13.5% |
€2.7 billion |
These figures are the most recent figures provided by the Revenue Commissioners which are available in its online ready reckoner (available at www.revenue.ie/en/about/statistics/ready-reckoners.pdf).
Costings related to exempted services such as transport, education and charities are not available.
