Barry Cowen
Ceist:256. Deputy Barry Cowen asked the Minister for Finance his views on a reduction of VAT on residential construction to stimulate construction activity. [27316/17]
Amharc ar fhreagraTuesday, 20 June 2017
Ceisteanna (256)
Freagraí scríofa
VAT is governed by the EU VAT Directive, with which Irish VAT law must comply. While most economic activity is subject to the standard VAT rate of 23%, construction services already avail of the reduced VAT rate of 13.5%. Ireland has historically applied the 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive.
The Programme for Partnership Government committed to ask the Oireachtas to consider the merits of a temporary targeted reduction of the rate of VAT from 13.5% to 9% on new, affordable houses and apartments, both public and private, timed to generate the maximum impact on supply and to target principally the purchasers of affordable homes.
In its Report of June 2016, the Oireachtas Committee on Housing and Homelessness reviewed the costs of construction including VAT, in the light of the Programme for Partnership Government commitment. They recommend that the Housing Agency annually review construction costs but did not recommend that the VAT rate on new residential property be reduced.
The ESRI reported in 2016 that any tax incentives aimed at developers are likely to have little effect on supply while other constraints are in place, such as stringent planning regulations, infrastructural constraints, and access to finance and building costs, including the impact of building regulations. In the presence of such constraints, the introduction of any tax incentive would likely lead to a transfer of tax revenue away from the State without any significant effect on supply.
With this in mind, ahead of last year's Budget I decided that relief would be better operated through the income tax rather than the VAT system. In this context I introduced the Help-to-Buy incentive in Budget 2017 to help encourage the building of additional new homes. That scheme will run until the end of 2019.