Indirect tax (VAT)
The Minister announced the introduction of a sugar tax for drinks that contain at least 5g of sugar per 100 ml. The rate will be 30c per litre where the sugar content is at least 8g per 100ml and 20c per litre where the sugar content is between 5-8 g per 100ml.
The 9% VAT rate for the hospitality sector, which was introduced in 2011, will continue to apply. The only VAT increase announced by the Minister is that the VAT rate on the use of sunbeds will increase from 13.5% to 23%. The Minister linked the increase to the connection between sunbeds and cancer.
The only change to tax on the “old reliables” was an increase in excise duty of 50 cents per pack of 20 cigarettes and pro-rata on other tobacco products which is likely to be welcomed by the health lobby.
There was also a welcome announcement for charities which, effective from 2019, will be able to claim back a proportion of the VAT that they incur based on their non-State funded expenditure. To be entitled to a refund a charity must be registered with the Charities Regulator, have tax clearance and provide a set of audited accounts. The minimum claim will be €500 and the total refunds for the sector for 2019, which will be based on expenditure incurred in 2018, will be capped at €5m.
The sugar tax, the increase in the rate of excise duty on the cigarettes and the increase in the rate of VAT on sunbeds will mainly affect consumers. The sugar tax will also have a significant impact on the soft drinks industry while the refunds for charities should benefit all charities registered with the Charities Regulator. Charities should ensure that they meet the criteria for refunds. Charities should now prepare for the impending changes and in the first instance they should consider what steps need to be taken to ensure that they meet the qualifying criteria for refunds.
For the majority of businesses the indirect tax changes will not have an impact.
As the sugar tax will be effective from April 2018 businesses liable for the new tax will have to ensure that their systems will capture the required data to enable them calculate their liability so that they are fully compliant from a tax perspective. They should also review all their products to establish the impact of the tax on profitability and consider what mitigating measures should be taken.
We welcome the health driven changes which should encourage a change in consumers’ habits with consequent health benefits. While the sugar tax will directly impact the soft drinks industry it also provides an incentive for the industry to develop more healthy products as consumer tastes and attitudes change.
We also welcome the introduction of VAT refunds for charities. However, we note that the total refunds for the sector are capped at €5m with each charity receiving the same proportional refund. This lack of certainty of the exact amount of an individual charity’s VAT refund will make it difficult for it to budget for the refund. To eliminate this problem the cap should be lifted. This would also eliminate pressure on charities as we assume, that under a cap model, all refunds will have to be submitted by a certain date. In any event it is vital that the process for refunds is simplified so that the administrative cost of applying for a refund is kept to a minimum.
While there was no change to the 9% VAT rate that applies to the hospitality sector, which benefits the sector right across the entire country, it is noteworthy that there was no reduction to the 13.5% rate of VAT that applies to the sale of new houses. While a number of changes were introduced to benefit housing it seems that the government was unconvinced that a reduction in the VAT rate would reduce the sales price of new homes.