The Central Statistics Office (CSO) published on 4 December 2009 the results of a survey of cross-border shopping as part of their Quarterly National Household Survey (QNHS) Q2 2009. The results showed that 16% of households in the Republic made a shopping trip to Northern Ireland in the twelve months to Q2 2009, with 41% in the border area and 21% in Dublin so doing. The report estimated that the total expenditure between Q2 2008 and Q2 2009 on cross-border shopping trips at €435 million. This is generally in line with the estimations published in March 2009 in the Report on the Implications of Cross Border Shopping, which was undertaken on my behalf by the Revenue Commissioners and the CSO. The QNHS also showed that the majority of trips involved purchases of groceries (80 per cent), with alcohol (44 per cent) and clothing and durables (42 per cent) being popular as well. Based on the data contained in this QNHS survey, Revenue estimated that the VAT and Excise loss in 2008 due to cross-border shopping, taking into account seasonal adjustments for the Christmas period, would be in the region of €90 million.
The March 2009 Report on the Implications of Cross Border Shopping noted that the main causes of price differentials between goods in Northern Ireland and the Republic were operating costs, profit margin (mark-up), taxes and a significant depreciation of Sterling against the Euro. While changes then made in the standard VAT rates widened some price differentials, their impact however remained small compared to the size of the change in the exchange rate.
The 2010 CSO Quarterly National Household Survey module on cross border shopping was conducted and completed in Q2. The results of this survey are expected to be published by the CSO this Friday, 12 November 2010. On receipt of the results, Revenue will estimate the tax losses for 2009 and into 2010 arising from cross-border shopping.
However, with the increase in the UK standard VAT rate from 15% to 17.5% in January 2010 and to 20% from 4 January next, there will be little difference between the standard VAT rate in Ireland and the UK. In this case the differential between the standard VAT rates in both jurisdictions will have reduced from 6.5 percentage points to 1 percentage point. This combined with the reduction by around 20% on alcohol excise duty rates since December 2009, should provide less incentive for people to shop outside the State.
On the question as to whether Revenue should treat retail businesses in the border area sympathetically, Revenue expects that businesses will organise their affairs in such a way as to ensure that they are timely compliant both as regards the filing of tax returns and the payment of tax debts as they arise. This is an essential element in ensuring a strong tax compliance culture and a level playing field between businesses. As Ireland's tax and customs authority, I believe Revenue's expectations in that regard are appropriate and correct.
However, Revenue is prepared to work with businesses that may experience short term cash flow challenges which impact on their ability to be timely compliant. A critical consideration for Revenue is the viability of the businesses concerned and their capacity to meet future tax liabilities as they arise. Revenue has strongly encouraged early engagement by businesses with payment difficulties, and I am advised by Revenue that such engagement must be time bound and cannot be seen or used as a mechanism to defer payment of future debts as they arise. Early engagement with Revenue, and the putting in place of appropriate measures with Revenue's agreement to secure timely compliance, is therefore the correct approach that businesses experiencing the type of difficulties referred to by the Deputy should take.
