Charlie McCreevy
Ceist:21 Mr. McCreevy asked the Minister for Finance the Government's policy with regard to the harmonisation of value-added tax rates within the EU; and if he will make a statement on the matter. [4395/95]
Ceisteanna — Questions. Oral Answers. - Harmonisation of VAT Rates.
Our existing VAT rate structure is fully consistent with current EU obligations. The possibilities for reduced rating and transitional arrangements under the governing EU VAT Rates Directive continue to be availed of where budgetary circumstances allow.
The European Commission has not made any recent proposals which would require Irish rates generally to be changed. The Commission has, however, recently presented a report to the Council of Ministers on the approximation of rates within the European Union in which it concludes that the position is generally satisfactory with regard to the functioning of the new Single Market system in regard to VAT rates. No significant changes in cross-Border purchasing patterns have been detected since 1 January 1993. Similarly, there have been no significant distortions of competition or deflection of trade brought about as a result of excessive disparities in VAT rates between neighbouring member states. The Commission further concludes that, in these circumstances, there is no justification at present for introducing major changes to the existing rating arrangements, including the various specified minimum levels and the scope of the optional reduced rates.
I am quite prepared to accept these general conclusions as they would seem to correspond with our experience to date in Ireland in relation to internal market rating structures.
The Deputy will be aware that the present VAT regime for the treatment of intra-Community trade is intended to be transitional in nature and that any change to a definitive system could have significant implications for rating structures.However, the Commission has not yet made any proposals in relation to the adoption of a definitive system, although it has indicated that a discussion paper on the matter will be presented in the near future. Of course, until the Council decides on the adoption of a definitive system, the existing transitional rules will continue to apply and they will, in any event, last at least until the end of 1996.
The Government will be happy to examine any proposals brought forward by the Commission in relation to the definitive system on their merits bearing in mind budgetary, economic and social considerations.
I am aware of the difficulties involved in having a unified VAT rate and the loss to the Exchequer. However, is the Minister not of the view that, in pursuing the ideal of European unity, harmonisation of VAT rates should be pursued as a general policy objective?
Yes, I am of that view but the Deputy will recall the extensive and difficult debates on the harmonisation of rates prior to the completion of the internal market arrangements. A number of specific proposals were discussed and the present compromise, if we can call it that, emerged. Some of the fears expressed about the compromise did not materialise as is evidenced by the Commission's report. Until it brings forward new proposals we do not propose to take any initiative in the area.
Is the Minister aware of the submission made by the small firms' association in which it draws attention to the lack of competitiveness on this side of the Border compared to the North? It mentions that VAT is one cause of that. Has the Minister ever discussed the harmonisation of taxation on this island with his counterpart in Northern Ireland or in Britain?
I am aware of the submission and of the differences in the rate. In Ireland the standard rate is 21 per cent and in the UK and in Northern Ireland it is 17.5 per cent which causes problems for some small businesses. However, the corporation tax rate for manufacturing companies south of the Border is 10 per cent as against three times that in Northern Ireland. I have not had discussions on the harmonisation of taxation rates on this island with my counterparts.
Did I understand the Minister to say he accepted the proposition that there were no major distorting effects arising from the VAT system? The Irish newspaper market is seriously distorted by the presence on our neighbouring island of a highly organised and capitalised industry which does not pay VAT. Has the Minister asked the EU to take measures to protect the newspaper industry from this unfair competition?
I was quoting from the Commission's report where it concluded there was no major distorting effect.
The Minister said he agreed with it.
I do because our internal analysis drew the same conclusion.