Hardware and Building Materials Industry: Discussion

I welcome Mr. Jim Copeland, chief executive, Mr. John Murphy, president and Mr. Brendan Maher, vice-president, of the Irish Hardware and Building Materials Association and thank them for their attendance. I draw their attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. The witnesses are among the first groups to hear this. However, if you are directed by the committee to cease giving evidence in respect of a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter, of which you obviously are very familiar, of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I begin proceedings by thanking Mr. Copeland for a sharp and succinct presentation. The association is starting one-nil up, which is very good. However, I must ask the delegates to make themselves two-nil up by not reading through their presentation verbatim, which is almost school-like and they are business people and people of the world, but by summarising it to the best of their ability. Members already have read a considerable amount of this material and are ready to question the delegates, which probably is the best way to ascertain what they consider must be done. I invite Mr. Copeland to summarise the presentation in so far as is possible. Is that all right?

Mr. Jim Copeland

Yes. The Chairman should give me some leeway as I may be obliged to refer to some of the text.

There is no issue in that regard. If there is something important that Mr. Copeland wishes to highlight, there will be no difficulty in his use of one or two paragraphs.

Mr. Jim Copeland

All right. I will then work on the assumption that the early part of the submission about the association may be taken as read. We have appeared before the joint committee today to discuss two issues. The first is the impact on our trade, were carbon tax to be implemented. The second issue concerns the impact if nothing is done about the prompt payment legislation. If the Chairman permits, I will read through some of the submission on carbon tax issues. Were the Government to decide on an implementation of carbon tax on solid fuels, that is, on coal and peat briquettes, for the coming winter season, it would present a clear and present danger in respect of probable and significant job losses within our membership and industry and would have serious implications for our chain of distribution. We also are convinced that far from having a positive impact on the environment and rebalancing the tax base, it would have seriously negative implications across a range of categories in the areas of distribution and sales including job losses of up to 1,200, which is a conservative estimate based on 600 members losing two people each. Clearly, this is a potentially seismic event that will have dire consequences across the industry.

As already indicated, our membership is based within the 26 counties and such losses also will mean significant lost contributions by way of direct and indirect taxes and obviously will result in an increase on the burden to the State. The sale of domestic solid fuels between the key period of September and March is a critical footfall driver for our industry and it anchors and sustains many businesses during a difficult trading period. We already have seen severe disruption to the legitimate supply chain and a decrease in sales as a consequence of the increase in non-compliant fuel imports from Northern Ireland and further afield. The aforementioned fuel imports from Northern Ireland already enjoy a reduced VAT rate. In Ireland, the rate is 13.5%, while the equivalent rate in the United Kingdom and Northern Ireland is 5%. They also enjoy a regime in which their sulphur levels are allowed to trade at 2%, whereas our levels are at 0.7%. From now on, they also will have a carbon tax advantage. A significant advantage also arises from the fact that Northern Ireland and the United Kingdom do not pay any carbon tax on domestic solid fuels, as an exemption was granted on such products in 2000. This point is not generally known here and such a regime was adopted by France in March 2010.

As for security of supply, the current dependable supply of solid fuels sourced nationally will be adversely affected and will have the result of driving people back into the untraded sector. Moreover, it will undo much of the progress made in phasing out imported solid fuels. We appeal to the Minister for a commonsense approach, which would maintain the status quo on carbon tax regarding domestic solid fuels, at least until the robust mechanism he suggested last year are outlined clearly and are implemented. We have seen what has happened in the oil, cigarette and alcohol industries with cross-Border smuggling over the years and do not want something similar to happen in respect of solid fuels. If a carbon tax is to be implemented at some future date, we suggest that this be done over a period of years, thereby allowing for a smooth transition, locally and nationally. Even as matters stand at present, large quantities of high sulphur content solid fuel are avoiding VAT and are being brought across the Border on a daily basis. We also have evidence from our members proving that some merchants in Northern Ireland accept legitimate VAT numbers from customers for other products, including timbers for roofing houses, bathroom suites and other large value items, without substantiating the customers’ right to use the VAT number. We are engaged in discussions with Revenue at present on both these matters.

We also ask the Minister for Finance to introduce a winter fuel smart card or voucher scheme so that those who are entitled to use them can purchase solid fuel products only and from registered tax compliance companies. At present, this allowance is paid by way of a top-up on the recipient's current payment and can be spent on anything and not exclusively on solid fuel. We would be happy to engage with the Government in exploring avenues on the practicalities and mechanics of building a robust mechanism. After all, we will be the industry that will be called upon to drive it. We are gravely concerned regarding the implications for our industry, were the carbon tax to be introduced on domestic solid fuels and regarding its potential impact on the 1,200 people who would be made redundant as a direct consequence. Let no one state he or she was unaware of this consequence after the event, as these facts now have been laid before the joint committee. My colleague, Mr. John Murphy, will summarise his points on prompt payment.

Mr. John Murphy

Prompt payment legislation is a cancer in our business. Despite introduction of the late payment of commercial transactions resolution in 2002, the legislation is not working in favour of small and medium-sized enterprises. Numerous surveys have highlighted that small and medium-sized enterprises must wait an average of 76 days for payment. In my case, I have waited more than 100 days. The indisputable evidence is that large business organisations, along with some Government agencies, are delaying payment to cash-strapped smaller companies in all sectors. Unfortunately, the Department of Enterprise, Trade and Innovation has failed to take action on this. We urge the Minister to review the prompt payment legislation as a matter of urgency, with a view to amending and enforcing it to assist small and medium-sized enterprises. Currently it is optional rather than mandatory and there is the ability to contract out of it. This is unacceptable.

We are aware of a previously drafted but unused national survey that is available to the Department of Enterprise, Trade and Innovation. This could serve to benchmark and qualify the scale of the problem within all sectors. We would like to see a corporate social responsibility charter on prompt payment championed by the Government and introduced across Departments and semi-State organisations. This could also be advocated to multinationals and large companies and then cascade down the supply chain to medium-sized businesses and small to micro organisations. We ask the committee's assistance in progressing these two areas, which are important to the Irish Hardware and Building Materials Association. We are pleased to take questions on these and other matters.

I thank the delegates for the presentation. Regarding prompt payment, the Minister tells us all Departments have an excellent record of prompt payment. He says that in 93% of cases they pay within 30 days. Can the delegation give an alternative view to this? We do not know unless we hear from the delegation. I would welcome the legislation cascading down because in my business, if I had all I was owed I could retire from the Dáil. If I knew it was coming sometime I would be happy enough. I agree legislation should be introduced. What is the average waiting time for payment in that sector of the economy?

Can the delegation quantify or provide an educated guess of quantities of smuggled fuel? The Minister for Finance said he is conscious of the risk to the economy in terms of stability of supply and access to fuel from outside the State. From what he said, I understood he would not rush a carbon tax on that fuel but I would appreciate the opinion of the delegation on this matter. Have they had undertakings in this regard?

Mr. Jim Copeland

I will address the prompt payment question. Departments remain within the rules but satellite organisations, such as semi-State agencies such as the HSE and FÁS, do not. As it stands, the legislation is optional. It exists on the Statute Book but companies have the ability to avoid it. They can contract out of the provision if a prior contract exists. Companies do not have to adhere to it. If the Government can adopt a social charter and bring the large multinationals on board, that will allow medium-sized enterprises and small enterprises to follow. If everyone is paid what they are owed, banks will not need to lend money. It would be a great day's work if the Government and semi-State agencies paid on time. It would reduce the amount of money needed to be pumped into the economy.

I cannot provide the amount of solid fuel coming across the Border because no one is counting the number of trucks. Trucks bringing solid fuel are travelling across the Border on a daily basis. Trucks are coming down empty, loading up peat briquettes in the Republic of Ireland supposedly to bring back to Northern Ireland to sell, but they never leave. The products are zero rated because they are being invoiced as products for Northern Ireland. How will the carbon tax be calculated in this situation?

I am grateful to the Minister for Finance for talking about a robust mechanism but there is no robust mechanism for VAT and I do not know what they will do about a carbon tax. The 1,200 jobs to which I referred are real and are becoming more important. We are not selling as much building material as we did previously and the footfall driver in our stores in September is fuel. If the Government is pumping €500 million into the scheme for people on social welfare in winter, it would like to get some of that back. People selling from the back of trucks are not charging VAT. If done through legitimate outlets using a voucher scheme, those who are entitled to get it can purchase it from those entitled to sell it and the Government can receive tax.

I welcome Mr. Murphy and Mr. Copeland and thank them for their presentation. It is informative and highlights areas highlighted by others in the earlier part of the meeting in respect of bank finance, upward-only rent reviews and regulatory and local authority issues. We appreciate that these matters are affecting trading conditions at this challenging time.

I ask the committee to look into some format we can use as a template so that delegations can focus on two relevant issues and have an opportunity to liaise with the clerk to the committee. We meet some of the groups the delegation referred to, whether hedge funds that hold leases, local authority associations, regulatory regimes and banks. Sometimes they tell us a different story to what we have been told today. We are doing checks and balances and it would be more meaningful if groups could have an ongoing liaison with the committee so that we could check and balance issues along the way.

The Minister for the Environment, Heritage and Local Government has proposed a carbon tax agreed by the collective Government. Perhaps the delegation does not know the figure it is suggested will be collected on the solid fuel side. Is there any opportunity for revenue generation from the industry? I ask questions in order to get balance with regard to other areas. The delegation represents 800 outlets that employ 21,000 people and its presentation speaks volumes in this respect. I know Mr. Tony McNally who is on the association's executive and he periodically comes to me at the end of the year to raise important and relevant issues.

I congratulate the association and its executive on the fact that it focuses on topical and relevant issues. Today, it focused on prompt payment and the carbon tax. I support the association's submission. With regard to prompt payment, Senator Feargal Quinn introduced a Bill in the Seanad last week with regard to construction payments and Deputy Martin Mansergh gave an undertaking, as Minister of State in the Department of Finance that he would come back before the House on that within five months. This relates to what I said earlier about continued liaison with the committee. I suggest the association take the opportunity afforded by Senator Quinn's Bill to put forward recommendations and suggestions on the proposed legislation. I wish the association continued success.

Mr. Jim Copeland

Does the Senator wish me to respond?

Not unless Mr. Copeland has a specific comment.

Mr. John Murphy

I would like to comment on the prompt payments legislation. I will give an example. We represent merchant and hardware builder's providers all over the country. If one of our merchants sells something such as a can of paint on credit to somebody who comes in off the street, our merchant has no way to ensure the payment of that €20 or €30. There is no point in going to court to collect the money because under the prompt payment legislation payment is not mandatory. If payment for such credit sales was mandatory, not only would the merchant collect the money for the paint, but the Government would collect VAT and we can charge interest as it is legal to charge interest on credit. Currently, if a good customer comes in owing €10,000 a merchant can apply 7% or 8% interest, but the customer has the option to pay what he owes minus the interest. If it was mandatory, everybody would be on a winner, including the Government.

I thank the association for its presentation. We said earlier, before the delegation came in, that this is one of the industries that has suffered most in the current climate. I know from my constituency area, the city centre, which has a number of small and medium sized suppliers, that currently it seems to be just one problem after another for them. Prompt payment is a major issue for people. Even semi-State bodies have a problem in this regard. Deputy Morgan reminded us that we are constantly being told the Departments are doing their utmost to fill their obligations in this regard, but if there is an issue further down the line, this committee should consider examining it.

Has the Irish Hardware and Building Materials Association made any submission to the Minister on prompt payment legislation? Has there been dialogue between the association and the Department? It is essential in the current climate that if an amendment or new legislation is to be introduced, that the issues be raised sooner rather than later, because it takes some time to bring these about. It is better to move on these issues early rather than wait for someone else to move on them.

I have a question with regard to training and up-skilling of employees and understand the association interacts with Skillsnet on that. Has the association approached the Department with regard to support for training and up-skilling of employees? That kind of support could make a huge difference to a small or medium sized business in the current climate. Has the association put forward suggestions as to how the Department might support what it is doing in that area? I agree with Senator Callely that ongoing dialogue with this committee is a good idea, particularly for this industry.

Mr. Jim Copeland

I would welcome an opportunity to take part in any forum in this area, because it is difficult to bring all the issues to the table on a one-off occasion. If such a forum is set up to continue dialogue, we will be happy to take part. With regard to making representations to the Department, we met the Minister of State, Deputy Billy Kelleher, in recent weeks on the issue of prompt payment. It was due to that meeting that I mentioned in my submission that a piece of work exists in the Department in this regard. It relates to a study which has not been launched. The figures I have quoted today are from ISME, a fellow trade association, which does a quarterly review. However, the Department is in possession of a draft survey carried out under the previous Minister's watch. We now have a new Minister in the Department. We have asked the Minister of State, Deputy Kelleher, to ensure that draft results in legislation so that we can have a benchmark of where we are. The president of our association, Mr. Murphy, has already said the average waiting time for payment is 76 days, but he has been waiting for more than 100 days.

I did not reply earlier when Deputy Morgan asked about the average. I would say that we are talking about more than 100 days, which is a long time to await payment.

I asked about this in the Dáil last week. The Minister indicated that the legislation was not 100% ready, but that it was moving well. I asked that the legislation be extended to include the HSE, FÁS and the various others dragging down the average payment time. I understand the legislation has its basis in a European directive, which permits the penal interest rate for non-compliance to be set at 7% above the ECB rate, which is currently 1%. Therefore, the interest rate should be 8% and should be fixed by law. The time has come to stop pussyfooting around the issue. There is a legal basis for the regulation. There is no need for further legislation. The directive should be transposed and applied to our conditions for commercial trading. It is about time this happened.

We must stop pussyfooting around, saying we need more forums. We need to use what is there. The directive has been handed down to us from Europe and we are supposed to comply with it. Let us make it mandatory and extend it to cover all the semi-State bodies. I forget where the Department of Justice, Equality and Law Reform stood with regard to payments, but I do not want to name any Department in particular. Deputy Morgan was right that 90% or more fail to comply. In the early days of the crisis, the Government suggested it was desirable that payments should be made within 15 days, but that is more of the old "Dúirt bean liom go ndúirt bean léi". It is all very well to make that suggestion, but if people do not comply with making payments within 30 days, reducing the period to 15 days will not improve the situation, particularly when it is not mandatory. If we managed to get the 30-day payment period to operate well, we would have the perfect system. Most people would be happy to have that length of time to pay, but that is as far as it should go. In the old merchant days when people were buying grain or fertilizer, if they did not pay on the spot, they had to pay an added percentage, called the merchant rate. In the 1960s and 1970s there was a proper commercial transaction and trading environment in which people either paid up or suffered some penalty. It seems that the more we have progressed, the further backwards we have gone. At times, we seem to take one step forward and two steps backward.

Are the banks lending to businesses like those in the association? Our information is not clear on that. The banks show us results, but these do not show whether inquiries made have been accepted or refused. The statistics only show the businesses that have gone through the various stages. The Minister has told us AIB has €3 billion available to lend and that Bank of Ireland will also have €3 billion available. The banks have been propped up by this industry and by everybody else in the country, people who have not committed any sins, not even venial ones. Are these banks lending our money back to your businesses?

Mr. Jim Copeland

The short answer to that is "No", but we would not need that money if people paid on time. As much as we would like to borrow money and pay interest and pay it back, if the money we are owed was freed up and paid to us, we would not need to borrow at all. I agree, we do not need any more red tape. All we require is that the existing legislation be implemented. Even if it was 60 days, we would be satisfied.

It would be a big improvement.

Mr. Jim Copeland

Absolutely.

Mr. John Murphy

Sixty days is the norm in our industry. Approximately four or five years ago, large merchants here had €1 million out on credit to one building contractor. There were a number of such cases and there was no guarantee of payment.

I thank our guests for their extremely helpful and useful presentation. In the context of the carbon tax on solid fuels, what percentage of our guests' business relates to solid fuels? They suggest that the sale of such fuels between September and March drives other sales. What is the mix in overall terms? Has there been an analysis or an assessment of the loss that would be incurred if there was a decrease in the footfall associated with this matter? It is our guests' view that if the carbon tax is introduced, their regular customers will not seek to purchase solid fuels from them. To whom will they go to buy these fuels?

Mr. Brendan Maher

I represent merchants in Galway and I am based on the periphery of the city. I have noticed a 30% increase in the number of suppliers in the locality who are selling coal that is sourced in the UK and that comes directly from Poland or Northern Ireland.

Is Mr. Maher referring to people who sell solid fuels door to door?

Mr. Brendan Maher

I refer to those who sell door to door and to the drive-in fuel centres that tend to spring into existence in empty yards. Like Dublin, Galway is a smokeless city. As a result, on the city boundaries there has been a huge growth in the number of establishments selling the coal to which I refer. In view of the price at which it is being sold, these traders are obviously benefiting from the discounted VAT rate in the North or else they are obtaining it VAT free. They are taking advantage of the fact that genuine merchants such as us are not permitted to sell sulphur-producing fuels within the city limits. The fuels we sell must be smokeless. Due to the fact that those to whom I refer base their operations 100 m outside the city limits, they can sell the fuels to which I refer. It is a double whammy.

Businesses such as petrol stations, and so on, no longer sell Bord na Móna coal. Instead, they sell fuel purchased in the North. One of the larger petrol station retailers in the country has a business premises in Derry at which all the coal sold at its service stations is packed. That is a legitimate business and it probably accounts for 5% of the total service station forecourt sales in the Republic. It is difficult to estimate the quantity of coal and other fuels being transported across the Border. In Galway, it represents at least 30% of the business that is transacted.

The country has just experienced its coldest and wettest winter for a long period. During it, the price of solid fuel sales went through the roof. Unfortunately, however, we did not experience any growth in domestic sales. This growth all went to those who in the building trade would be termed "white van merchants". These are opportunists who merely take advantage of the situation. During the cold snap, they were engaged in selling salt. These are the type of traders attracting the extra business. This is quite a major issue.

When referring to solid fuel, we are not just discussing coal. It is possible to buy briquettes produced in Lithuania but which are produced on a machine previously used by Bord na Móna and which was exported there in 1979. The briquettes, which are made of eastern European peat, are nearly identical to those produced by Bord na Móna. It is possible to telephone a number in Northern Ireland and have a container-load of these briquettes delivered to Dublin Port. One can then collect them and not pay any VAT in respect of them. The goods in question never enter Northern Ireland.

It might be a legitimate business, but if a carbon tax is applied to Irish peat briquettes, then the number of eastern European briquettes sold here in the coming years will increase dramatically. Bord na Móna, a semi-State body, will suffer to a major degree as a result. Due to the fact that there are a number of fuel importers operating here, everyone tends to keep their cards close to their chests. In such circumstances, I cannot obtain information with regard to how practices of this type are impacting upon them.

Will Mr. Maher indicate the percentage of his business taken up with the sale of solid fuel?

Mr. Brendan Maher

It would represent approximately 9% to 11% of our turnover at present.

Mr. Jim Copeland

As Mr. Maher stated, it was a major driver of footfall at the end of last year both because of the downturn in our trade and as a result of the cold snap. The final part of the Senator's question relates to where it will go. The answer is that it will go to those whose activities are not regulated, namely, those who sell coal from the back of their trucks and who do not pay VAT. These individuals will not pay carbon tax. They probably sell cylinders of gas, which they fill themselves. The latter gives rise to health and safety issues. In addition, those to whom I refer sell their wares in town squares.

Unfortunately, it is to these people that the trade will go. The imposition of tax will have no effect in respect of reducing carbon emissions. It is merely a revenue-generating tool. Until an alternative is put in place — I cannot see this happening in the short term — business will be driven out of the legitimate trade and the Government will lose money as a result. As matters stand, the €500 million paid out under the winter fuel allowance scheme can be spent on anything. If people obtain top-up payments, they can use it to buy children's toys, cigarettes and whatever else they desire. People should be compelled to spend that money on solid fuel and should be obliged to do so in the outlets of recognised merchants. That is the only way to proceed. We would be quite happy to work with the Government in respect of this matter.

Do our guests suggest that there is ongoing illegal activity in the area of cross-Border fuel imports? I may have misunderstood but I am sure they referred to a lorry being loaded with peat briquettes which never crossed the Border. Would it be possible for them to comment further on that matter? What is the differential between a 20-tonne load of coal purchased from Bord na Móna and a similar load purchased in the North and sold down here? How much would an illegal trader make in respect of such a load of coal?

I am disturbed by our guests' comments in respect of coal from across the Border. I understand that this is much dirtier than the coal that is supposed to be used in this jurisdiction.

Mr. Jim Copeland

Exactly.

Given that we are trying to reduce carbon emissions, this is a major issue. This type of activity is assisting in undoing the work in which we are engaged.

Am I correct in stating that our guests want the Government to introduce a scheme whereby all people in receipt of a subsidy to purchase fuel should be given smart cards which can only be used to purchase fuel in tax-compliant outlets?

Mr. Jim Copeland

Exactly.

That makes a great deal of sense. Given that all small retailers are tax compliant, such a measure would affect the business of those who are not so compliant. Would the introduction of smart cards help prevent the 1,200 job losses to which our guests referred?

Did our guests indicate that people are crossing the Border to buy coal that is dirtier than that which is supposed to be used in this jurisdiction and that these individuals are using what, for want of a better description, might be termed "rented" VAT numbers? That is a major accusation to make. Activity of the type to which our guests refer is completely illegal. The authorities in this State should take action to put a stop to such activity.

Mr. Jim Copeland

Perhaps I will answer the Deputy's questions in reverse order. Our concerns with regard to the illegal use of legitimate VAT numbers also relate to the importation of loads of timber worth €5,500 each. If one is in business, one must print one's VAT number on a receipt or on any business documentation. Consequently, everyone has access to a business VAT number. People are travelling to the North and are using such VAT numbers without substantiating their right to so do. Merchants in Northern Ireland are accepting VAT numbers without substantiating that the purchasers are the legitimate users of such VAT numbers. Such people are purchasing all sorts of equipment on a zero rate basis, such as timber roofs, bathroom suites or any large ticket items. This matter does not only pertain to fuels and we included it in our submission to highlight it. We have alerted the Revenue Commissioners to it and are working with them on it.

In respect of smart cards or even a voucher scheme, as people with entitlements have smart cards anyway, this would not involve inventing anything new. As the Chair noted previously, we do not need anything new but simply require better use of what we have. Were that €500 million or the amount paid out under the winter fuel allowance to be kept within Ireland, then all the jobs could be saved. I refer to a scenario in which the recipients were obliged to go to a legitimate supplier, irrespective of size. It does not have to be one of our members, as we would be quite happy so long as they are in business and pay tax. We have an issue when recipients spend the money on something other than fuel or with a guy selling it off the back of a truck.

I completely agree with the Deputy in respect of the carbon friendliness of the product. The product coming from Northern Ireland, Scotland or wherever it originates, has a sulphur level of 2%, while the equivalent rate down here is 0.7%. Far from making the environment cleaner, we are going the other way. As for the question regarding crossing the Border, we are aware of two companies that are registered in Northern Ireland and that send down an empty truck to pick up peat briquettes in the Republic. However, the truck never returns to Northern Ireland until it is empty again. They pick up the load, which is invoiced to Northern Ireland, and sell the product down here. How can our guys who are paying VAT compete? They simply cannot do so.

Mr. Copeland has raised many issues there.

I apologise for being late but was I obliged to attend another function. I wish to support the association. Some of its members from the southern parts of the country have contacted me about the issues and anomalies that will arise on foot of the changes taking place, which pertain to carbon tax and Border-related VAT issues. I support the association and am conscious of all that has been said. My question relates to the high level of sulphur because if VAT levels in the Republic of Ireland differ from those that obtain in the North, coal will come over the Border. It is of lesser quality and will create great difficulties in respect of sulphur, etc. I perceive this to be an anomaly in which the problem will be created primarily by the carbon tax, as well as by the VAT issues. I can envisage substantial job and trade losses This is a reversion to the old subject of changes within the retail sector in the North versus that in the South, which has occupied members in recent years. Consequently, I support the association's case as best I can without getting into further detail. As all the questions I would have asked have been asked, there is no point in going into further detail. However, I understand the association's position.

Mr. Jim Copeland

I thank the Deputy.

I have been listening to the flow of information from the witnesses. On Mr. Copeland's last point about coming down from the North to buy a lorry-load of briquettes, where is the product being sold? Is it from the back of trucks, through street trading or something similar? Is there policing of this practice?

Mr. Jim Copeland

We are not aware of any policing. The point is that such product can even be sold into the legitimate trade at that stage, because traders can in turn charge VAT, although they are not paying VAT on it themselves. If one purchases product from Northern Ireland, one is allowed to buy it with a VAT rate of zero because import-export duties no longer apply. Our issue in respect of VAT is that the ability to zero-rate at point of sale is a recipe for disaster. While I acknowledge this is European Union law, several documents have emanated from the Union observing that this is a problem wherever land borders are shared. If one can travel to a neighbouring state and buy products with a VAT rate of zero, a problem arises.

Moreover, I refer to not being obliged to identify oneself as the user. If I have a VAT number, I should have a PIN number to use with it or should have a card to verify my identity, such as when one uses a Visa card. If the Revenue Commissioners give me a VAT number, they also should provide me with a PIN number and either I or my nominees should be the only people who are authorised to use it. Otherwise, the Deputy could go North with a SuperValu or Dunnes Stores receipt and use their VAT numbers. I would like to see some figures from Revenue regarding whose VAT numbers are being used. I received a telephone call last Friday from a member whose supermarket-owning friend experienced a VAT audit last week. The person performing the audit brought him a receipt from 2003 for a camper van that was bought using his VAT number. This man had no idea about the purchase. He has never bought a camper van and does not like camping. However, the camper van had been bought in 2003 using his VAT number.

Because his VAT number is on his receipts.

Mr. Jim Copeland

Revenue had the receipt and his VAT number was used to buy it. People have used our members' VAT numbers to buy jet skis, speedboats and all sorts of things. The problem we face is there is no continuation of the circle. There should be a method whereby one must identify oneself and it should be a requirement. As it is one's own VAT number, one should have the sole authority to use it.

On a related point, as this is outside our control or jurisdiction, does Mr. Copeland agree there must be a European solution?

Mr. Jim Copeland

Yes, it would be better were that the case. As Ireland is a member of the European Union within which this is a major problem, I seek the Government's support on a continuation of the circle because otherwise, the system will be open to such practices. One is obliged to publish a VAT number but this means that everyone has access to it. Unless controls are put in place regarding how such numbers are being used, it is open season.

Bord na Móna is deeply and correctly concerned about this issue because there is a differential in respect of both VAT and in the level of sulphur that is permitted. The level in the North is almost thrice the level for which we aim in the Republic and obviously we are eager to participate and to play our role in a low carbon economy and so on.

Some of the association's members are engaged in the selling of boilers. Has there been an increase in this or can the Government do anything to increase the number of non-carbon products that may be sold by the association's members or to achieve a greater degree of market penetration?

Mr. Brendan Maher

Manufacturers of stoves and boilers have taken a number of initiatives in recent years to make them more energy efficient. Legislation has been introduced whereby one must install a certain number of fuel-efficient products into new homes.

Mr. Jim Copeland

As for an incentive that would help to drive the sale of such products, apart from the point made by Mr. Maher, a reduction in VAT on the sale of products to promote carbon efficiency would be the way to go. For example, Bord na Móna has a certain number of products that are highly efficient when burned. However, as one must pay full VAT on them, they are not attractive. Consequently, even a time-limited stimulus package to get people to use them would be welcome. I refer to products such as compressed paper and so on that people could use, were they incentivised by a reduction in VAT. Mr. Maher probably sells products other than briquettes and coal.

Mr. Brendan Maher

Timber is a major product this year and Bord na Móna has entered the timber market actively using indigenous Irish woods to supplement briquette and coal sales. It is conscious——

Rather than having a carbon tax, such products could be used by having a reduction in VAT. Rather than imposing a carbon tax, providing a stimulus through a reduction in VAT would achieve the objective. If one did not have a carbon tax of however many cents per bale of briquettes on the low carbon products, would it not be better to incentivise the utilisation of low carbon products——

Mr. Jim Copeland

Absolutely.

——by having a carrot rather than relying on a stick? Is that not what this is all about?

Mr. Jim Copeland

It is far easier to persuade someone to do the right thing than to beat him or her over the head for doing the wrong thing.

I will paraphrase a famous Senator, who is Leader of that House at present, and who always says it is never the wrong time to do the right thing.

Given the changes that are taking place, by how much do the witnesses expect the sales tonnage to drop in the South as a result of sales made in, or product being imported from, the North? I understand there will be a substantial loss. Is this true?

Mr. Jim Copeland

Yes, there will be a substantial loss in tonnage with substantial knock-on effects in respect of job losses, tax payments and so on. Deputy O'Keeffe will appreciate this is very difficult to quantify because we do not know the quantity of product that comes across the Border as it stands. Our colleagues in the Solid Fuel Trade Group have monitored it and truckloads of it come across the Border daily. Some of it is not even coming across the Border. It is nominally coming across the Border but as Mr. Maher said earlier, one picks it up from Dublin Port. It is invoiced across the Border but it never actually is.

I understand that down in the deep South the tonnage would drop substantially and that it would all come from Northern Ireland but it would be of a lesser quality and a different level of payment.

Mr. Jim Copeland

Absolutely.

That is where the anomaly is.

Mr. Jim Copeland

Yes.

I understand the association has approximately 585 members but there is a whole range of people who are not members of the association. I get the impression that some of those people are abusing the system, in so far as they are importing from the North and not paying VAT and taxes, and must have an outlet for it. Roofing timber was mentioned. One does not take in loads of timber without having a place to go with it. I do not think that individuals who are building houses are purchasing from these people but must be going to the bigger suppliers. It is clear there are people out there competing with the association who are not paying VAT.

Mr. John Murphy

I know of a case in Galway last week, where a private individual went up to the North of Ireland to buy a roof of timber and brought it in and used a VAT number that was not his. In other words, he could have gone into a supermarket and got a VAT number and used it. As Mr. Copeland has said, we have had two major meetings with the Revenue and we have given it information. One of our members on the Border has given it great assistance in terms of the use of their company's VAT and how often their company has been used for VAT transactions. Our association is working very closely with the Revenue and will continue to do so, because it is in our interest. There is a large number of private individuals in every county in Ireland — I am not speaking about the Border but I can give instances in Cork and Wexford — who have crossed the Border and bought the materials for their house and either had it delivered or hired a truck. This is a fairly rampant practice.

Is the imported timber of an inferior quality or is it good quality timber?

Mr. John Murphy

It can be anything. There is a timber specification here in the Republic. When timber comes across the Border it can be anything. We just do not know.

Mr. John Murphy

It is possibly kiln dry but it may not be to the standard or quality required here under our regulations. The likelihood is that it probably is not.

Mr. Jim Copeland

If they are sourcing it from Northern Ireland and if there are no requirements to adhere to the standards here, why would they? It is probably used for one-off houses. There are no large building sites at present so it is the one-off housing market. That is the reason it is so crucial because that is the market we are seeking also. These people travel north of the Border and the Revenue does not have the manpower to check them. We are liaising with the Revenue and giving it information on a daily basis. The local merchant in Mallow or wherever knows who is building houses and he knows that if he is not getting an order for a roof of timber, it is going elsewhere. It is not rocket science.

I come from an area where there is a well-known timber manufacturer, Glennon Brothers, and from time to time I am lobbied by the workforce that their future is at risk because of imports from Sweden, Norway or, perhaps, Lithuania. I understand the quality of that timber is equal to our timber but there is a preference to import it. Are the delegates saying that poor quality timber comes through the North vis-à-vis what is coming into this country in imports?

Mr. John Murphy

Yes.

Mr. Brendan Maher

As a merchant we buy off the company mentioned in Cork. That company uses locally produced timber where possible but it also imports timber. A large quantity of timber comes across the Border which is of similar quality to that available here.

I understand it is importing raw material from Scotland.

Mr. Brendan Maher

It is of similar quality but there are more unscrupulous merchants in the North who would say that it is going across the Border and that it does not have the same standards. They would sell a certain amount that would be of an inferior quality. By and large, the timber is the same, the difference is that there is no VAT on it.

Why is there no VAT on it?

Mr. Brendan Maher

I can go down to the local Spar and it will issue me with a receipt which has a VAT number. I can drive up to the North of Ireland and go into any merchant there and introduce myself, give the name of my company, and show the VAT number. What is the name of the European VAT register?

Mr. Jim Copeland

VIES.

Mr. Brendan Maher

Generally they can go in and check that it is a valid VAT number but they do not have to verify who I am. They will then say they can export that timber to the Republic at zero-rated VAT and ask for €1,000 instead of €1,210 and off one goes, having saved oneself €210 because one paid no VAT on it. That is what is happening.

Mr. John Murphy

Everybody pays money in the North for their goods whereas our merchants in the South give credit.

It is a double whammy.

Mr. John Murphy

Yes. It is a double whammy.

I thank Mr. Copeland, Mr. Murphy and Mr. Maher for assisting us in our deliberations today. This is an important issue in the context of the economy and they have outlined it very well. It is one of the industries where most of the raw materials are sourced in Ireland so it is important in that context. I note that the industry employs 21,500 employees in about 790 retail outlets, or thereabouts, across the country. I am sure there are thousands of other jobs depending on these outlets in downstream activity. The issue of carbon taxes, the prompt payment of moneys owed as well as other subsidiary issues are important in helping to maintain jobs.

In regard to carbon taxes, these can only be introduced where there is agreement with the authorities in the North of Ireland that every measure has been taken to ensure that smuggling of fuel from one jurisdiction to the other has been eliminated or, at the very least, minimised.

As regards the prompt payments legislation, we have made our views known. The legislation is in place. Let us ensure it is applied quickly and fairly and that it is rigorously adhered to and if there is any infringement that it be dealt with promptly. In that context, it is important to ensure that the interest payments due under the European aspect of the legislation are implemented. Those are areas we will follow up on the association's behalf. We thank the witnesses for appearing before the committee and giving us the benefit of their wisdom and knowledge.

Mr. John Murphy

I referred to our membership and Deputy O'Keeffe mentioned Glennon Brothers. Gypsum Industries, Tegral and Wavin, some of the major manufacturers in Ireland, are also members. They want the business here in the Republic.

Is the association saying it can compete with persons based here who source their materials in the North of Ireland?

Mr. John Murphy

We cannot.

The association cannot compete with them.

Mr. John Murphy

No, because there is no VAT.

That is the point Mr. Murphy is making, that it is unfair competition.

Mr. John Murphy

It is unfair competition. The prices might be the same except for VAT at the rate of 21%.

The joint committee adjourned at 3.10 p.m. until 2 p.m. on Thursday, 3 June 2010.