Dáil Éireann Debate, Tuesday - 20 June 2017
258. Deputy Barry Cowen asked the Minister for Finance his views on whether it would be legally permissible and technically possible to implement a timed VAT reduction on residential construction that would by statue expire after a certain number of years as a means of stimulating construction activity. [27320/17]
Amharc ar fhreagra289. Deputy Barry Cowen asked the Minister for Finance further to Parliamentary Question No. 146 of 9 May 2017, the reason his Department is of the view that it is unfavourable to have two separate VAT rates applying to construction services, especially if the policy objective is to reduce the cost of one form of construction vis a vis another form in view of the high returns on commercial development compared to residential at present. [27819/17]
Amharc ar fhreagraI propose to take Questions Nos. 258 and 289 together.
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.
Applying a lower VAT rate to the construction of new residential properties would result in different VAT rates between residential and non-residential construction services, and it would also involve having different VAT rates between the construction of new homes and repair and maintenance work on those homes. This would be very difficult to administer and could lead to accidental or fraudulent underpayments of VAT.
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. One of the main policy aims of the incentive is to assist a first-time purchaser fund the deposit required to purchase or self-build a new house or apartment to live in as their home.The other main aim of the policy is to help encourage the building of additional new properties. By restricting the initiative solely to new dwellings and new self-builds, it is anticipated that the resulting increase in demand for affordable new build homes should encourage the construction of an additional supply of such properties. The scheme will run until the end of 2019.
