Dáil Éireann Debate, Tuesday - 2 May 2017
216. Deputy John Curran asked the Minister for Finance if he will review the merits of a temporary targeted reduction of the rate of VAT in view of the continuing shortage of supply of new housing and continuing escalating house prices; and if he will make a statement on the matter. [20288/17]
View answerWhile most Member states apply the standard rate to construction services – on average 21.5% - Ireland already applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive.
Applying a lower VAT rate to the construction of new residential properties would result in different VAT rates between residential and non-residential construction services, and it would also involve having different VAT rates between the construction of new homes and repair and maintenance work on those homes. This would be very difficult to administer and could lead to accidental or fraudulent underpayments of VAT.
The ESRI reported in 2016 that any tax incentives aimed at developers are likely to have little effect on supply while other constraints are in place, such as stringent planning regulations, infrastructural constraints, and access to finance and building costs, including the impact of building regulations.
In the presence of such constraints, the introduction of any tax incentive would likely lead to a transfer of tax revenue away from the State without any significant effect on supply.
