Dáil Éireann Debate, Tuesday - 9 November 2021
235. Deputy Richard O'Donoghue asked the Minister for Finance if discussions are expected to give VAT and taxation incentives to encourage landowners back into forestry in order to contribute to the Climate Action Plan. [54777/21]
View answerThe Government launched the Climate Action Plan 2021 on 4 November 2021, this is a detailed plan for taking decisive action to achieve a 51% reduction in overall greenhouse gas emissions by 2030 and setting us on a path to reach net-zero emissions by no later than 2050, as committed to in the Programme for Government and set out in the Climate Act 2021. In addition to maintaining existing re-afforestation plans, it is intended that by 2030 a planting rate of 8,000 hectares a year will be achieved to increase carbon sequestration.
There is an existing tax incentive that encourages landowners into forestry. Section 232 of the Taxes Consolidation Act 1997 (TCA 1997) provides that profits or gains from the occupation of woodland in the State, which is managed on a commercial basis and with a view to realising a profit, are exempt from income tax and corporation tax (but not the Universal Social Charge and Pay Related Social Insurance).
Capital gains arising to an individual on the sale of woodlands are also exempt from capital gains tax (CGT) insofar as they relate to standing timber under section 564 TCA 1997. Any gain attributable to the underlying land is however subject to CGT.
I am advised by Revenue that the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. The activity of forestry and other forestry services is considered an agricultural activity which is generally undertaken by farmers.
Farmers who elect to register for VAT and charge VAT on their supplies can claim a deduction for VAT incurred on costs that are used for the purposes of their taxable supplies.
Alternatively, farmers can remain unregistered and opt for the Flat Rate Scheme which is designed to reduce the administrative burden for farmers and to compensate them for the VAT borne on the purchases of goods and services relating to their activities. An unregistered, flat rate farmer can also claim a refund of VAT incurred on the fencing, drainage or reclamation of any land intended for use for the purposes of his or her farming business including forestry.
A reduced VAT rate of 13.5% currently applies to Forestry services. This includes lopping, tree felling, pruning, hedge trimming & similar services. It also includes combined sowing & planting. Consultancy services for forestry are also subject to a reduced rate as they are considered a farm advisory service. However the standard VAT rate applies to drawing of timber & haulage which is standard rated.
