Dáil Éireann Debate, Thursday - 16 June 2022
16. Deputy Aengus Ó Snodaigh asked the Minister for Finance if consideration has been given to temporarily lowering the VAT rates, as was done for the hospitality industry on building materials and services to address the hyper-inflation which is driving the cost of homes further out of reach of young couples and delaying other projects due to spiralling construction costs; and if he will make a statement on the matter. [31303/22]
Amharc ar fhreagraI am advised by Revenue that the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive. Hotel and holiday accommodation is listed in Annex III of the Directive and, therefore, can be subject to VAT at a reduced rate.
However, building materials are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate. By way of special derogation from the general rule though, Ireland is permitted to continue its long-standing practice of applying a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but there are strict restrictions on this derogation, including that the rate cannot be reduced below 12%.
In addition, under the EU VAT Directive the supply of construction services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, again subject to strict restrictions. The Deputy will be aware that this derogated rate also applies on sales of new homes.
Following lengthy negotiations the new agreement on VAT rates that came into force in April allows Ireland to maintain this derogation rather than apply the standard rate of VAT.
