VAT, Excise & Environmental Measures – Budget 2018

VAT, excise and climate change measures

VAT overall remained relatively untouched though a special scheme is finally to be introduced for the charities sector. And, from midnight tonight, those with a bad habit will have to dig deeper in their pockets to satisfy their craving.

VAT

Charities are exempt from VAT under the EU VAT Directive and as a result cannot recover VAT incurred on goods and services that they purchase. The Department of Finance and the Irish Charities Tax Reform Group have been examining how charities might be compensated in this regard.

As a result, the Minister has now announced a charities VAT Compensation Scheme. This is essentially a VAT refund scheme to compensate charities for the VAT they incur on their inputs. The scheme will be introduced in 2019 in respect of VAT expenses incurred in 2018. Charities will be entitled to a refund of a proportion of their VAT costs based on the level of non-public funding they receive. An amount of €5m will be available to the scheme in 2019.

Moving onto the weather here in Ireland. Something we never expected to write about in the context of Budget announcements. Whilst we can’t say we live in sunny climes here, skin cancer is the most common form of cancer. Recognising the clear link between sunbed use and this cancer, the VAT rate on sunbed services is to increase from the reduced rate of 13.5 percent to the standard rate of 23 percent from 1 January 2018. This increase is more likely a behaviour changing strategy given it is projected to have a minimal gain for the exchequer. So, the message is get the fake tan out if you’re a fan of bronzed skin.

And, whilst it’s certainly not our Irish weather which brings the tourists here in their droves, Failte Ireland and many in the tourism sector are big fans of the reduced 9 percent rate for tourism.

The Minister was keen to laude tourism as a national success story despite the uncertainty of Brexit. That said, one clear impact of the UK’s decision has been a continuing weakness in the value of sterling.

While prices in Dublin continue to rise, the Minister is keen that VAT policy cannot be decided on the basis of one location only but must be in the context of the national interest. Accordingly, the VAT rate on the tourism and services sector remains at 9 percent.

Excise and old habits

In a Brexit protection measure, and as expected, 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 an additional 25 cents on roll your own tobacco. This will take effect from midnight tonight 10 October 2017 and will bring the price of cigarettes in the most popular price category to €12.

This is expected to raise €64 million for the exchequer in a full year. But you can still enjoy your glass of wine or beer (responsibly) safe in the knowledge that these won’t cost anymore from a tax or duty point of view.

Combatting climate change

In line with the National Mitigation Plan, the Minister has asked his officials and the Economics and Social Research Institute to carry out a review of carbon tax. This is intended to generate proposals for Budget 2019 around the role of tax in driving changes to behaviour in households and business.

The beginning of 2018 will also see proposals being brought forward for discussion in relation to vehicle registration tax (VRT) on leased vehicles. This is specifically to meet the requirements of a recent Court of Justice of the European Union judgement which held that the Irish VRT rules infringe the freedom to provide services across EU borders. Under current Irish law all importers of vehicles are obliged to pay the entire tax liability for permanent vehicle registration.