Budget 2021 indirect tax vat

Perspectives

Indirect tax (VAT)

Budget 2023

Key measures

The main VAT change in the Budget is an extension until 28 February 2023 of the 9% VAT rate that applies to gas and electricity. The rate was due to revert to 13.5% on the 1 November 2022.

Effective from January 2023 0% VAT will apply to newspapers and defibrillators down from 9% and 23% respectively. Hormone replacement and nicotine replacement therapies as well as small number of period products will also become liable to VAT at 0%.

The Minister also confirmed that the 9% VAT rate for the hospitality sector will not be extended beyond the scheduled date of 28 February 2023 which will be disappointing for the sector.

Moving to excise duty, the current reduction of 21 cents a litre on petrol, 16c a litre on diesel and 5.4 cents a litre on marked gas oil will be extended until 28 February 2023.

There will be no increase in the price of petrol or diesel at the pumps due the increase in carbon tax which comes into effect on 12 October as the cost will be offset by a reduction in a levy on the National Oil Reserves Agency levy which will mean that there will be no increase in the price of the fuel on the forecourt.

Similar to last year’s budget excise duty on cigarettes will increase by 50 cents per pack of 20 cigarettes and pro-rata changes on other tobacco products. In contrast excise duty for small producers of cider and pear cider/ Perry will be reduced by 50 per cent.

Who will be affected?

The main beneficiaries of the budget will be consumers particularly due to the extension of the 9% VAT rate on electricity and gas until the end of February 2023 which will cover the winter months when demand is at its highest. The reduction in the zero rate of VAT on newspapers, hormone replacement and nicotine replacement therapies and certain period products should also benefit consumers.

The fact that the increase in the carbon tax effective from 12 October will not translate into an increase in cost of fuel at the pumps should benefit all motorists as will the extension of the reduction in excise duty on petrol and diesel until February 2023.

Our view

We welcome the benefits for motorists and the extension of the 9% VAT rate on electricity and gas, that will benefit the public as energy costs continue to rise.

The Minster stated that the 0% rate on newspapers and defibrillators would apply from 1 January 2023 however, he has not specified the date that the 0% will apply to the sale of hormone replacement and nicotine replacement therapies, and certain period products.

So that consumers can benefit as soon as possible from the reduction in the VAT rate to 0% we would call on the Minster to apply the reduction on all of the products effective from 1 November 2022.

Finance Bill 2022: Key Provisions

  • Investment management services provided to certain overseas collective investment schemes and AIFs, which are authorised by a competent overseas EU authority, have been added to the list of qualifying special investment funds in the domestic Irish legislation. The “management” of a special investment fund is exempt from VAT and as a result of the changes the management of an undertaking for collective investment in transferable securities authorised within the EU, and the management of an authorised EU AIF, will now be exempt from VAT. As such, this will likely have a negative impact on the VAT recovery position for Irish investment managers providing services to certain overseas EU based funds.
  • The exemption for management of a S110 entity has been limited and exemption will not apply to the management of a s110 entity where the entity holds qualifying assets that are ‘plant and machinery’. As an example, this will impact s110 vehicles that hold leased aircraft. The management of those entities will now be subject to VAT. This is most likely to represent a cash-flow cost for the lessor unless the management company is within a VAT group or the lessor is engaged in exempt activities.
  • The zero rating for “preparations and extracts derived from milk” has been removed. This will see a number of milk based drinks where the milk content is greater than 50% become standard rated.
  • There is an extension of the exemption from VAT currently in place for independent groups of persons (also known as cost-sharing groups) to members who also carry out taxable activities, in line with recent Court of Justice of the European Union judgements, previously this was only available to persons involved in exempt or outside the scope of VAT activities.
  • The supply of agency services related to the management of various investment vehicles will no longer be exempt and will be chargeable at the VAT standard rate.
  • The definition of “qualifying activities” in section 59(1) has been amended by the deletion of paragraph (e) which defined a Qualifying Activity as including the issue of new shares or other securities that were issued to raise capital to be used for the purposes of the issuer’s taxable business. The deletion arguably brings the Irish law into line with the EU Directive as the issue of shares or securities for the purposes of raising capital is not a qualifying activity under EU law. Paragraph 6(1) of Schedule 1 is amended to delete the exclusion of the issue of new shares or securities for the purposes of raising capital from the exemption for the issue of shares or securities. It seems clear that based on EU case law such issues are outside the scope of VAT and therefore the exclusion from the exemption was in any event obsolete.
  • The bill confirms that were a person with a domestic registration engages in intra community trade in goods it will have to notify Revenue within 30 days of that trade commencing. Presumably the registration will then be updated to a “full registration” in line with existing practice. As such, the change should only have the effect of introducing a legal requirement to notify Revenue of the change.
  • A new definition is introduced for “professional medical care services” for the purposes of the exemption of such services. Effectively the exemption will only apply where the services are provided by a registered medical practitioner, a registered member of a designated profession or a registered midwife or nurse. This change clarifies the exemption and should make it easier to apply.  

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