Budget 2009 - VAT

The Minister announced an increase in the standard VAT rate from 21 per cent to 21.5 per cent with effect from 1 December 2008. This increase will apply to all goods and services which are currently subject to VAT at 21 per cent. The measure is estimated to yield €208 million in 2009 and €227 million in a full year.

As a consumer tax, changes to VAT for businesses are largely VAT "neutral". However as most goods, services, fuels, clothing, cars, luxury items are subject to VAT at the standard rate, the Consumer Price Index will increase by 0.225% as a result of 0.5% change. It would appear that the rate increase is at odds with the predicted reduction in inflation to 2.5% as cited by the Minister for 2009.

Its notable that the 13.5% rate of VAT applied on the sale of new houses remains unchanged which fits in the Government's passive policy of encouraging the failing construction industry.

The Minister noted that there was no change to the Zero rate which applies to food, children's clothes and footwear, oral medicines etc.

The 21% standard rate has been in operation since 1 March 1991 with the exception of a short lived reduction in 2001.

By EU standards Ireland now ranks among the high VAT rate jurisdictions of Sweden at 25%, Finland 22% and Demark at 25%. Our nearest neighbour, the United Kingdom operates a 17.5% standard VAT rate. The difference in the Irish standard VAT rate compared to the average rate operating in most of the EU will make Ireland less competitive on sales to non business EU customers.

The Minister included the words mandatory e-filing and pro-business measures in the same breath and announced a further measure to encourage the uptake in the use of on-line filing in the form of an extended deadline for returns filed on ROS. It will be interesting to see if the incentives of an extended deadline will apply to businesses already in the mandatory e-filing net.