Deputies may recall that, on 23 November last, the Minister for Finance answered two parliamentary questions on the special VAT advance payment measure but, for the benefit of the House, I will repeat the essential elements of the Minister's reply to those questions and perhaps expand a little.
The Finance Act, 1993, made provision for the special advance VAT payment as one of a series of measures taken to offset the greater part of the substantial cash-flow loss to the Exchequer arising from the abolition, from 1 January last, of VAT at point of entry on intra-Community trade. The special advance payment will be required from the largest VAT remitters and represents an advance on the payment they would normally make in the following January. Full credit for the advance payment will be granted to traders against their normal VAT liability in January.
The Finance Act provided that liability for the advance payment would arise for taxpayers whose annual net VAT liability exceeded £120,000. Therefore, from the very beginning, the great majority of VAT-registered taxpayers, numbering some 132,000 in all, were excluded from the requirement to make the special advance payment. The Act also enabled the Minister for Finance to increase the threshold. Last month, a review of the latest statistics enabled him to raise the threshold to £300,000, thereby immediately absolving some 1,000 taxpayers from the obligation to make the advance payment. It was estimated, at that stage, that the revenue yield from the 1,000 or so top remitters who remained subject to the initiative would be approximately £145 million, as budgeted for originally.
Since then, there has been a judgment of the European Court of Justice in Luxembourg arising from an Italian VAT case which has implications for our special advance payment measure. Essentially, the court has ruled to be invalid any VAT payment requirements which would impose a liability greater than that actually incurred at the time the payment is made. Thus, to avoid any possible conflict between EU law, as interpreted by the court, and our provisions, the Minister has modified the provisions governing the payment required from the traders involved.
Last Wednesday, the Minister for Finance made an order giving taxpayers the option of making the advance payment on the notified basis, i.e., equivalent to one-twelfth of their total net VAT due in the 12 months ended 30 June of the relevant year, or on the basis of their liabilities for November, whichever is the lesser. I have no doubt that this prompt decision will, given continuing budgetary constraints, be seen as fair and will alleviate many of the concerns expressed by the traders affected.
The Minister has acknowledged that his recent action has consequences for the 1993 budgetary outturn; it is estimated the revised arrangements will leave a shortfall of some £65 million as compared with the original budget target for the measure. Taking account of this shortfall, he remains satisfied that the EBR for 1993 will be reasonably close to the budgetary estimate of 2.9 per cent of GNP. I also want to make it clear that, given the inherent nature of the measure, the new provisions will not have any budgetary implications for 1994. This is because, from the outset, it has involved two broadly offsetting effects in that year. The same applies to the modified version which has been put in place. Accordingly, it does not have any bearing on room for manoeuvre in the forthcoming budget.
The Revenue Commissioners issued a total of 1,087 notices to VAT payers on 4 November, 1993 about the advance payment. These taxpayers have been contacted again by the Revenue Commissioners concerning the new arrangements.
In order to facilitate traders in calculating their November liability in the context of deciding whether they want to pay the amount of the advance payment as notified or their November liability, the order which was made provides that the due date for payment will be construed as 10 December, rather than 1 December as stipulated in the Finance Act, 1993. In the event of non-compliance with the advance payment measure, any surcharge due will now, in view of the revised payment date, be calculated from 10 December. Traders will, of course, still be able to defer payment until 21 December if a prior arrangement has been agreed with Revenue.
In the light of what I have just said, it will be obvious that the Minister for Finance does not intend to abandon the measure this year or for the foreseeable future. It remains vital in current budgetary circumstances. He will, of course, keep its operation under review, in particular in relation to the threshold for liability.
The fact that this is a cash-flow measure does not mean that it is unimportant or that it should be denigrated in any way. Cash-flow is crucial both in the Exchequer and business worlds. Let me assure the House that business fully appreciates what is involved here and, indeed, that IBEC accepted the need for the particular initiative in the context of the significant repercussions on the public finances arising from the abolition, on 1 January 1993, of VAT at point of entry on intra-Community trade. I would also point to the inherent fairness of the measure in general terms, in that it gives the business community the benefit of the cash-flow gain — approximately £200 million — for most of the year and that full credit will be granted against the normal VAT payments made in January of the following year. The Minister has shown considerable understanding and concern for the taxpayers involved, as evidenced by the amended arrangements put in place, firstly in ensuring that, by raising the threshold to £300,000, only the top taxpayers, approximately 1,000, will have to make a payment and second by moving quickly to clarify their liability in the light of the recent Court of Justice decision. As a result of the recent decision, the majority of those taxpayers who have expressed concerns will find that they will now have the option of paying a reduced amount and, indeed, some may find they now have no liability under the measure.
