Dáil Éireann - Volume 415 - 18 February, 1992

Written Answers. - Approximation of Indirect Taxes.

184. Mr. Spring asked the Minister for Finance if he will outline (a) the main areas of divergence in indirect taxes between Irish and United Kingdom rates and (b) the steps he proposes to take to avoid trade diversionary effects in the aftermath of the dismantling of customs borders in the EC.

Minister for Finance (Mr. B. Ahern): For some time now, it has been apparent that, when tax-motivated border checks are abolished within the EC Single Market, a closer approximation of indirect tax rates would be required, particularly between neighbouring member states, if unacceptable diversions of trade and revenue were to be avoided. Budgetary policy here in recent years has responded to this requirement through a combination of reductions in the standard VAT rate, a virtual standstill in the main excise duty rates, except [2069] those on tobacco products, and the abolition of many minor exercises. These changes, coupled with certain upward adjustments in UK rates, have resulted in a considerable narrowing of the differentials in indirect tax rates between the two countries. For example, whereas there was a 10 per cent difference between the respective standard rates of VAT in 1989, this gap has now been reduced to 3.5 per cent.

The other remaining main areas of rate divergence concern domestic energy products, zero-rated in the UK but liable at the 12.5 per cent VAT rate in the State, beer, wine, petrol, heating oil and motor vehicles, where excise rates are significantly higher than in the UK.

Under the post-1992 arrangements agreed by the ECO/FIN Council, the freedom of private individuals to purchase in other member states without tax implications will be the guiding principle. However, in order to limit potential cross-border trade distortions, the Council have also agreed that as regards VAT special arrangements shall apply for a transitional period, until end-1996 at least, in the following areas: mail order and distance sales, i.e. where goods are dispatched or transported by or on behalf of the supplier to a private individual in another member state; new vehicles and other means of transport and, covering private cars, commercial vehicles and certain motor cycles, boats and aircraft; non-taxable bodies and small traders, involving purchases above at least 10,000 ECU annually.

In these cases, VAT will be payable in and at the rate of the country of destination.

The Council have also agreed that member states who apply zero-rating should have the option to retain such rating, at least, during the transitional period. In recognition of the distortion of competition that this could involve for Ireland, because domestic energy products are zero-rated in the UK, it has been agreed that, following a favourable opinion from the Commission, we may apply a reduced rate to such products.

In the excise duty area the ECO/FIN [2070] Council have agreed that, post-1992, excise duties on commercial quantities of tobacco, alcohol and mineral oil products will continue to be payable in the country of consumption at that country's rate. On 10 February last, the Council approved a directive establishing a control framework for inter-Community trade in excisable goods designed to ensure the security of revenue involved. The new arrangements and deterrents envisaged are designed to correspond to the degree of risk associated with the various channels of movement involved, ie duty suspended or duty-paid and to the nature of the operator concerned ie bonded warehouse-keeper, registered operator or unregistered operator. The provisions of the new directive will be translated into national legislation during 1992: supplementary national measures are also under consideration.

Post-1992, with the exception of hydrocarbon oils, excisable goods acquired in another member state by private individuals for their own use and carried by them when returning to their own member state will not be subject to further duty on their return. Criteria have been laid down to enable private transactions to be distinguished from commercial transactions. These include the commercial status of the holder of the goods as well as the quantity carried. In the case of alcoholic beverages and tobacco products, indicative quantities have also been specified; if these are exceeded, there will be an onus on the person carrying out the transaction to prove that it is a private one. Ireland has been authorised to apply lower indicative figures for beer and wine until mid-1997.

Finally, I should say that, in the run-up to the completion of the Internal Market, I shall continue to review our indirect tax rates with a view to ensuring that undue trade and revenue distortions do not occur when border controls are removed, while, of course, having regard to the wider budgetary repercussions of any changes.