Originally posted on Business Post 6 June 2021.
Vat is to all intents and purposes invisible, although for many of us it eats into our disposable income to a much greater extent even than income tax.
On a day when they announced business supports to the value of hundreds of millions of euro, it must have been profoundly irritating for government ministers to see the relatively minor increases in local property tax grab the lion’s share of the headlines.
The employer wage subsidy scheme alone has cost the state almost €4 billion to date, and is now being extended to the end of this year. In comparison, LPT has never raised more than around €500 million a year and, even with the projected changes, is unlikely to raise significantly more than that in the future. Yet it is the LPT change that gets the attention.
Another tax hike announced last week isn’t getting nearly the same coverage. The Revenue Commissioners have announced that, with effect from July 1 next, they will apply the full rigours of the EU Vat regime to online purchases from non-EU countries.
Unlike the revamp of LPT, the change has been met with a national shrug of the shoulders. Like customs duties, excise and carbon taxes, Vat is to all intents and purposes invisible, although for many of us it eats into our disposable income to a much greater extent even than income tax. It adds to the cost of our purchases as consumers, and there is no way to avoid or circumvent it.
A Vat rate of 23 per cent applies to many of the goods which make life more enjoyable – cars, most clothes, cosmetics, electronic gadgets of all sorts and white goods. Any consumer buying these types of goods online from outside the EU is not charged Vat if the individual item costs less than €22. From July 1, that practice will cease including for some items which attract lower Vat rates.
This may not seem like a big change in the overall scheme of things because the €22 threshold is fairly low. Nevertheless, removing the exemption reinforces the notion that you're always better off dealing with an EU business. Any possible tax saving by shopping online further afield is removed, but the bonus of better regulation and consumer protection when dealing with an EU based supplier remains.
Aside from reducing paperwork, it makes little sense to have any form of preference for non-EU suppliers over domestic or EU suppliers, particularly as we exit from the pandemic. Irish business needs every competitive advantage it can secure.
Will there be any pushback to this change? Given the increasingly febrile nature of the relationship between Britain and the rest of the EU, this move could well be seen as another gesture by the EU against a post-Brexit Britain by applying Vat charges to Irish consumers buying from British websites.
Unfortunately, a fundamental dishonesty, similar to that seen in the 2016 Brexit campaign, is creeping back into the post-Brexit discourse.
Edwin Poots, the new DUP leader, has already claimed that the EU is seeking to punish Britain in its application of the Northern Ireland protocol. That view is overly simplistic because it reflects only the commercial disruption created but not the commercial advantages conferred by the protocol.
The EU’s ambassador to Britain last week retorted that Brexit, not the protocol, created the problem but that too is overly simplistic. Having managed to control the Brexit negotiation process for so long, the EU allowed itself to be bounced into enforcing impractical arrangements on Christmas Eve last year.
The single market would not have been particularly compromised by allowing a further period of trial on new controls and procedures on imports and exports between Britain and the North beyond the Brexit guillotine date of January 1 last.
The irony is that this Vat change doesn’t change the treatment of consumer purchases from the North because the North was part of, and remains part of, the EU Vat system for goods. Nor is Britain being singled out by the change, because it applies to purchases from any non-EU country. This is what you would expect, as the EU policy was devised when Britain was still at the table in Brussels.
Both the Vat changes and the LPT changes announced last week underline that when it comes to taxes we generally respond primarily by reference to what we last experienced. Consumer reaction to a Vat change is usually a shrug of the shoulders, because the prices of consumer items go up and down all the time and consumers will be indifferent to the Brexit implications.
Similarly, our reaction to the LPT change is being informed by the lower amount, or the zero amount, we paid last year. It doesn’t seem to matter that the LPT system as it currently operates works from an out-of-date property register, nor that some measures to raise taxes are inevitable because of the costs of extending the pandemic supports to citizens and businesses.
We shouldn’t be surprised if the government is frustrated by the response to the Economic Recovery Plan. Taxation is always a stone in the political shoe.
Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland
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