Dáil Éireann Debate, Tuesday - 27 July 2021
294. Deputy Brendan Griffin asked the Minister for Finance if he will introduce a VAT refund scheme for first-time buyers or builders in respect of the first €200,000 spent on materials and labour; and if he will make a statement on the matter. [40412/21]
Amharc ar fhreagra443. Deputy Brendan Griffin asked the Minister for Finance his views on whether it is sustainable to continue to tax housing construction and materials so heavily at a time when persons and the economy require houses more than anything else; his further views on whether a fundamental shift to targeted low tax policy in respect of housing construction and material would be the obvious and simplest way to support first-time buyers and builders in particular; and if he will make a statement on the matter. [41309/21]
Amharc ar fhreagraI propose to take Questions Nos. 294 and 443 together.
I am advised by Revenue that the VAT rating of goods and services is subject to EU VAT legislation with which Irish VAT law must comply. In general, the EU VAT Directive provides that all goods and services are liable to VAT at the standard rate, currently 23% in Ireland, unless they fall within categories of goods and services specified in Annex III of the VAT Directive, in respect of which Member States may apply a lower rate from VAT. In line with the VAT Directive, Ireland also maintains several standstill provisions and derogations that allows it to maintain reduced rates to certain supplies for historical reasons. While most Member states apply their standard VAT rate to construction services, it is important to realise that Ireland already applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive.
The Deputy is suggesting a differentiation of VAT rate on housing according to the type of buyer involved. Under the EU VAT Directive, for the purposes of applying VAT rates, it is not permissible to differentiate between first-time and other categories of buyers, or to differentiate between the supply of different types of residential property (based, for example, on the type or size of residential property).
While it would be legally possible to decide to further reduce the VAT rate on the construction, repair and renovation of residential property, this would not be possible for non-residential property; however, such an approach would be very undesirable, as it would involve having two separate VAT rates applying to similar construction services, which would be complex to administer and could easily lead to accidental or fraudulent underpayments of VAT.
The Deputy asks about VAT on building materials. Revenue advises me that, under the EU VAT Directive and Irish VAT legislation, the supply of building materials is liable to VAT at the standard rate, currently 23%. Member States are not permitted to apply a VAT rate lower than the standard rate to building materials, although Ireland – by way of historic derogation from the general rule – is permitted to continue to apply its reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks. It should be borne in mind that while builders and developers charge VAT on sales of developed residential property at the 13.5% reduced rate, they are entitled to recover the full VAT incurred in the development of that property, including VAT at the standard rate on building materials. Thus, even were it possible, a reduction in the rate of VAT on building materials would not reduce building costs.
On the question of the level of the VAT rates generally, it is worth noting that it is unlikely that a reduction would be passed to consumers; the construction industry have previously indicated that they see a reduction in the VAT rate as a method to improve cash flow and not as a tool to effect price reductions.
The Deputy also asked about the possibility of a VAT Refund Scheme for first time buyers or builders in respect of the first €200,000 spent on materials and labour. I am advised by Revenue that the introduction of a VAT compensation mechanism for purchasers is generally contrary to the operation of VAT. It is for this reason that Ireland has not introduced any new VAT refund orders since the 1980’s and any changes to VAT refunds since then have been either by EU requirement or making minor changes to existing orders. In any event, as a normal feature of the VAT system, builders are already entitled to recover the VAT they incur in the development of property.
In addition, the Deputy will be aware that rather than a reduction in the VAT rate on the construction sector I introduced the Help to Buy (HTB) incentive to assist first-time purchasers with the deposit they need to buy or build a new house or apartment. Section 477C Taxes Consolidation Act 1997 outlines the definitions and conditions that apply to the scheme. The incentive gives a refund of Income Tax and Deposit Interest Retention Tax (DIRT) paid in Ireland over the previous four years, subject to limits outlined in the legislation. As well as assisting first-time buyers, the fact that the HTB is targeted at new residential developments has also assisted with the supply of residential properties for would-be purchasers.
