The Finance Act 1993 introduced a VRT repayment system for the short-term car hire sector — that is, cars hired on contracts for 35 days or less. The purpose of the scheme was to address shortages in the supply of cars for hire within the tourism industry at that time. The effect of the repayment scheme is that a car is effectively free of VRT for the period it remains in the car hire fleet.
Arising from Revenue audits, especially in 2007 and 2008, there is strong evidence that the sector has manipulated contracts to ensure that cars used for the provision of services, which were not originally envisaged under the scheme, nonetheless benefit from the VRT relief available. In addition, operators have applied the scheme to cars for use outside the tourism area, including enabling corporate clients to provide a pool of cars to visiting executives or to their own staff, and also allowing VRT-free driving by Irish citizens who hire rather than own a car, while their neighbours who own cars have to pay VRT.
The scheme was amended by section 80 of the Finance Act 2008 to try to limit such abuses. However, the sector raised objections and concerns. The scheme, especially following amendment, necessarily imposes a considerable administrative burden on individual firms, and on Revenue, to ensure that the conditions for the VRT refund are being met and that the scheme is not being abused. A number of meetings were held between Revenue and the sector.
It has been complained that the scheme, if operated correctly, is complex to administer. It was also argued that it not only restricts normal competitiveness between firms, but limits the potential to grow the car rental market outside the tourism sector to other longer term rentals. Some operators have made the point that to continue to qualify for the relief on cars actually used in the provision of cars to tourists, as the scheme intends, they would have to maintain two separate vehicle fleets — one for hire to tourists and another for the domestic market — and this would be uneconomical and unworkable in practice.
Easing further the terms of the scheme, while widening its availability, would not cover everyone currently availing of the scheme, legitimately or otherwise, nor would it significantly reduce the growing administrative burdens. It would also effectively remove any distinction between short and long-term car hire.
The cost effectiveness of the relief is now questionable, as rental prices in Ireland are quite low compared to equivalent prices in other EU member states. In addition, the increasing use of the scheme to support a range of business models, which have little to do with tourism, would indicate that the current supply of vehicles required for the tourist industry in the State more than meets current demand and the excess is therefore being put to other non-tourist related uses.
Given that the scheme is prone to abuse, and the considerable necessary administrative burdens imposed on both Revenue and operators to ensure that the conditions for the VRT refund are being met and that the scheme is not being abused, a decision to phase out the scheme has been taken. I see this as a balanced response to the issues of short-term car-hire repayments.
The retention of existing repayment provisions for 2009 recognises the difficulties being experienced by the car sector generally at present. It also affords the sector further time to make considerable savings on VRT liabilities by switching more of the rental fleet to lower CO2-emitting vehicles in 2009. Abolition of the scheme will remove existing restrictions and allow operators to develop their business models based on the domestic rental market.
While some firms in the sector may resist the phasing out of the scheme, other operators have indicated that they would prefer abolition of the scheme, rather than having its use restricted, as a consequence of which some business models would qualify under the scheme while others would not.
I see no need for an adjustment to the phasing provisions included in the Bill, hence I cannot accept the amendment.