Indirect Tax (VAT)
Finance Bill 2018
The main VAT change announced in the Budget was an increase from 9% to 13.5% in the VAT rate that applies to hotel and other holiday accommodation services, catering and restaurant services, hairdressing services, cinemas, art galleries, theatres and the sale of horses other than sales to farmers. This rate increase will come into effect from 1 January 2019 and was enacted by the Dail by way of a financial resolution. The Finance Bill includes a technical change to reflect this amendment.
Additionally, the Finance Bill provides that the 9% rate will apply to books, magazines, and periodicals supplied electronically over the internet which are currently liable to VAT at the 23% rate. The 9% rate will not apply where the publication is mainly devoted to advertising or the content is mainly music or video.
The Bill also contains a number of Excise duty changes. Certain drinks become liable to the Sugar tax unless the calcium content is at least 119 milligrams per millilitres. Betting duty will increase from 1% to 2%, again effective from the 1 January 2019 and the rate of betting intermediary tax payable by remote betting intermediaries will increase from 15% to 25%.
The Finance Bill also provides for changes to the duty on tobacco products (50c on pack of 20 cigarettes in most popular price category with a pro rata increase on other tobacco products) which took effect the day following the budget.
The bill also made various changes to the VRT rules including changes to the definition of CO2 emissions to reflect the introduction of a new emission measurement system. The changes also provide for an increase of 1% on each of the CO2 bands for most diesel vehicles. In addition car hire businesses and driving schools will suffer an additional increase in VRT costs as there will be a change to the calculation of their VRT with the removal of a long standing relief from VRT on VAT on the purchase price of the vehicle.
While the tourism industry has reacted very strongly to the increase in the 9% VAT rate and has said that it will have a major negative impact on the sector the increase in the rate was not unexpected following a review of the rate by the Department of Finance which stated that demand for hotel accommodation and restaurant services was not expected to be materially affected by an increase in the VAT rate. The review anticipated that the increase in the VAT rate would impact more on profitability of businesses, rather than prices charged to customers. Also, the Department stated that the 9% rate was regressive benefitting better off households disproportionately more than worse off households.
Critically the increase in the 9% VAT rate will not have any impact on the already high rents being charged in the residential letting market as, in contrast to holiday type accommodation, that accommodation is exempt from VAT. It is also welcome that the 9% rate will continue to apply to newspapers and sporting facilities.
The reduction in VAT rate on e-publications is welcome and will mean that magazines and periodicals will be liable to VAT at the same 9% rate whether they are supplied electronically or in print form. However, in contrast books sold over the internet will be vatable at 9% while books in print format will be liable at 0%. We would suggest that the VAT rate on e-books is reduced to 0%.