Dáil Éireann díospóireacht -
Tuesday, 6 Feb 1996

Vol. 461 No. 1

Written Answers - Indirect Taxation.

Dermot Ahern

Ceist:

83 Mr. D. Ahern asked the Minister for Finance the plans, if any, he has to bring Irish indirect taxation into line with European norms; if he has satisfied himself with progress in this regard to date; his views on the necessary parallel between the creation of a single currency and the establishment and maintenance of broadly similar indirect tax regimes in each EU state; and if he will make a statement on the matter. [2622/96]

Minister for Finance (Mr. Quinn)

Ireland's system of indirect taxation is already grounded in EU law both in relation to excise duties and value added tax. The EU rules were agreed in the run up to the 1993 Single Market. There is no necessary connection between the introduction of a single currency and the EU rules on indirect taxation.

With regard to excise duties, there are definitive harmonised EU rules for production, holding and movement of excisable goods in the Community. These rules specifically relate to tobacco, hydrocarbons and alcholic drinks. There are also EU harmonised rules governing the structure of excise duties on these products and the minimum rates which member states must apply. The Irish excise duties regime operates satisfactorily within the framework set by these EU rules, which allows member states to set their own rates of duty provided that they respect the minimum rate.

As regards value-added tax, the entire system, including the rating structure, is governed by EU VAT law. The main legal instrument is the Sixth VAT Directive.

The rules on VAT rating were agreed at European level in the run up to the 1993 Single Market. The main features are as follows: a single standard rate of at least 15 per cent applicable to most goods and services; the option of applying one or two reduced rates (subject to a minimum of 5 per cent) to certain specified goods and services (we have one reduced rate of 12.5 per cent); application of a reduced rate for restaurant meals and housing if member states applied such a rate to these items on 1 January 1991 — we are availing of this facility; application of a "parking rate" of at least 12 per cent to goods and services which were at a reduced rate on 1 January 1991 but which are not on the reduced rate list. This is a transitional measure only: these goods and services are ultimately destined to be standard rated — we availed of this facility for certain labour intensive services; retention on a transitional basis of existing zero-rates and super-reduced rates, such as our special livestock rate.

Our standard rate is currently 21 per cent. This is not significantly out of line with other countries in Europe; in the enlarged Union, the arithmetic average of the standard rates is about 19 per cent. Three member states have rates higher than ours. Moreover, our standard rate has been reduced considerably in recent years from 25 per cent in 1990 and a sizeable proportion of Irish business enjoys the benefit of zero or reduced rating; only 52 per cent of the VAT base is standard rated.

The present transitional VAT system for intra-Community trade is based on taxation in the country of destination. The directive envisages that this will ultimately be replaced by a definitive system based in principle on taxation in the country of origin of the goods or services supplied. It is generally accepted that such a system would involve a closer convergence of rates within the Union. A discussion paper from the European Commission in relation to the definitive system may be produced later this year but the target date of 1 January, 1997, for the introduction of the definitive system seems unlikely to be met. The Commission and the majority of member states consider that the transitional system is working well. Under the terms of the directive the transitional system will continue in operation until the Council has decided on the definitive arrangements.