VAT, excise and climate change

Oct 09, 2018

The expected hike in the special VAT rate for the tourism sector from 9 percent to 13.5 percent materialised. And, from midnight tonight, those with a bad habit will have to dig deeper to satisfy not just their craving for cigarettes but for any little flutters they may fancy. But there was no change to carbon tax…..for now.

VAT on tourism

What a difference a year makes. Last year, the Minister was keen to laude tourism as a national success story and whilst hotel prices in Dublin continued to rise, he was determined that VAT policy would not be decided on the basis of one location only but would be set in the context of the national interest. That’s no longer the case.

According to the Minister, the economic analysis conducted on the 9 percent rate found that the rate “had done its job”. VAT will therefore increase from 9 percent to 13.5 percent from 1 January 2019 which, according to the Minister, will raise €560 million in a full tax year. This change won’t apply to newspapers or sporting facilities. Will the Finance Bill contain anti-forestalling measures to stop the industry taking advantage of the lower rate before the January change? Let’s wait and see.

Balancing this with concerns that this change may present a challenge to the sector, the Minister allocated €35 million to the Department of Transport, Tourism and Sport to provide more targeted supports to the sector including €4.5 million for regional initiatives such as Ireland’s Hidden Heartlands and the Wild Atlantic Way, and almost €10 million for the further development of greenways.

Currently, 16 of the 19 Eurozone countries have tourism VAT rates of 10 percent or less. From January 2019, Ireland won’t be one of them. Interestingly, the UK government is currently examining the impact of VAT (and air passenger duty) on tourism for Ireland’s neighbour Northern Ireland. Will the hike to 13.5 percent in Ireland make a reduction from the 20 percent VAT rate in Northern Ireland even more tempting especially as sterling continues to remain weak?

VAT on publications

To enable national and regional newspapers to remain competitive and meet the challenges of the modern media landscape, the rate of VAT on electronic publications will fall from 23 percent to 9 percent from 1 January 2019, at a cost of €8 million. This follows recent agreement among EU Finance Ministers to allow Member States to apply reduced VAT rates on digital publications. The 9 percent rate of VAT for newspaper publications remains unchanged.

Fancy a flutter?

From next January it will cost you more. In more recent years, the Government’s priority has been to level the playing field by extending betting tax to remote bookmakers and betting exchanges. Now this has been achieved, betting tax will increase from 1 percent to 2 percent on amounts wagered in the State.

In addition, betting duty on commission earned by betting intermediaries/exchanges will increase from 15 percent to 25 percent. These increases will take effect from 1 January 2019 and, according to the Budget documents, will generate an additional €51.6 million in a full year.

Old habits die hard

Fuel excise duty remains unchanged. The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT) with a pro-rata increase on the other tobacco products and there will be an additional 25 cents on roll your own tobacco. The minimum excise duty on tobacco products is increasing so that all cigarettes sold below €11 will have the same excise applied as cigarettes sold at €11. These changes all take effect from midnight tonight 9 October 2018 and will bring the price of cigarettes in the most popular price category to €12.70.

This is expected to raise almost €62 million for the exchequer in a full year. But you can still enjoy your glass of prosecco or craft beer (responsibly) safe in the knowledge that these won’t cost anymore from a tax/duty point of view.

Carbon tax

Last year, the Minister had asked his officials and the Economics and Social Research Institute to carry out a review of carbon tax the report for which was published today. This was intended to generate proposals for Budget 2019 around the role of tax in driving changes to behaviour in households and business.

The Executive Summary of the report sets out that the purpose of the study was to investigate the economic and environmental impacts of increasing the current carbon tax in Ireland from €20 per tonne of CO2 to a maximum of €40 per tonne. According to the report, carbon tax is relatively low and constitutes just 1.9 percent of total taxes levied on commodities in Ireland. It currently accounts for only 7.6 percent of total excise duties levied on petrol and 14 percent of all excise duties on diesel.

However, the report reveals that increases in the carbon tax affects the prices of diesel and petrol the most. This is the most likely reason why the Minister did not announce increases in carbon tax at Budget 2019 but there is an intention to put in place “a long-term trajectory for carbon tax increases out to 2030” in line with the recommendations of the Climate Change Advisory Council and the special Oireachtas Committee which are examining climate changes. The message seems to be: watch this space.

Vehicle registration tax

For non-hybrid vehicles, a 1 percent surcharge for diesel passenger vehicles registering in Ireland will apply across all vehicle registration tax (VRT) bands from 1 January 2019. However VRT relief for conventional hybrids and plug-in electric hybrids is being extended and will continue until the end of 2019.  The net tax take from these two measures is an extra €9 million for a full year.

The Minister then intends to review these reliefs in the context of the overall changes to VRT brought about by the new emissions measurement system which will increase the amount of VRT payable on many new cars.

Finally, the 0 percent benefit-in-kind rate for electric vehicles is being extended for a period of 3 years, with a cap of €50,000 on the original market value of the vehicle.