Indirect tax - VAT and excise duties

Budget 2015

Insight from Pascal Brennan, Partner, Deloitte on Budget 2015.

In traditional fashion, there is a revenue raising measure which is only obscurely mentioned in the Budget statement.  The Government highlights in the Budget summary that an additional €100m is to be collected in VAT in each of the coming two years and its VAT revenues are to then increase again over the following three years from €125m to €150m each year.

Unusually, it is not the Revenue Commissioners who will collect this VAT from Irish taxpayers.  Rather, it is the tax authorities of the other EU Member States who will collect it from them and then remit it to the Revenue Commissioners.

This strange state of affairs comes about following a fundamental change to the rules affecting the place of taxation of electronically supplied services to private consumers, which comes into force from 1 January next.

Historically, the VAT rules obliged the supplier of these types of services to charge VAT at the rate applicable to these services in the country in which the supplier was established.  For example, a UK supplier supplying electronic services to an Irish customer would charge UK VAT and pay it over to the UK authorities.  Under the new rules, the UK supplier will now charge Irish VAT which will still be paid over to the UK authorities but who will then remit it to the Irish tax authorities.   

The Irish authorities and businesses supplying these services to private consumers will have similar obligations in respect of electronically supplied services which are supplied from Irish-based businesses to private consumers.  However, because Ireland had a higher VAT rate than many other EU Member States the Government expects that Ireland will have a net gain to the exchequer in the amounts mentioned above over the coming years as a direct result of these new European VAT rules.

There is also a slight sting in the tail for Irish taxpayers, however, and that is that they will probably end up paying some of the cost of the additional VAT brought into the Irish exchequer by this EU change.  This depends on whether the country from which the service is currently being acquired has a lower VAT rate than Ireland on the services concerned or not.  If it has, it can be expected that the amount of VAT charged by the service supplier will increase to recover the higher VAT rate.  On the other hand, the taxpayer may get a reduction in the cost of the service if the country had a higher VAT rate than Ireland.

Separately, it was a good Budget for farmers as far as VAT is concerned.  The flat rate addition is to be increased from 5% to 5.2% from 1 January, 2015.  This is a VAT charge which unregistered farmers are allowed to make to VAT-registered businesses which they do not have to pay over to the Government.  This charge is retained by the farmer and provides compensation to them for being unable to recover VAT which they have to pay on their costs.

The Budget was also relatively kind to the old reliables.  Only cigarettes and tobacco products were hit. An increase of 40c, including VAT, will apply to a pack of 20 cigarettes, bringing the price to €10 for the most popular brands.  Pro-rata increases will apply to other tobacco products; however, it would seem that roll-your-own tobacco is to be increased by 60c per 25g pack because the Budget summary statement states that an “additional 20c” will apply to these products.  These changes are effective from midnight tonight.

Betting duties are to be extended to remote operators and betting exchanges during 2015.  It is estimated that this will generate €25m in additional revenue. Vehicle registration tax reliefs are being extended on hybrid vehicles until 21 December 2016 and microbreweries are to be allowed the 50% reduction on alcohol products tax on 50% greater output than currently allowed.  The current threshold is to rise from 20,000 hectolitres to 30,000.

Finally, the Minister has retained the 9% VAT rate for the tourist sector, but put it up in lights that if the value of the reduction was eroded in increased charges to visitors he would move to reverse it.

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