Joint Committee on Agriculture and Food debate -
Wednesday, 23 Sep 2026

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Reduction in the Farmer VAT Flat-rate Addition: Discussion

An Cathaoirleach

We will start into business at full tilt. I welcome our witnesses and members this afternoon.

Before I begin, I want to bring to everyone's attention that witnesses who are giving evidence from within the parliamentary precincts are protected by absolute privilege in respect of the evidence that they give to the committee. This means that a witness has full defence in any defamation action for anything said at a committee meeting. However, witnesses are expected not to abuse this privilege and may be directed to cease giving evidence on an issue at the Chair's direction. Witnesses should follow the direction of the chair in this regard and are reminded of the long-standing parliamentary practice to the effect that, as is reasonable, no adverse commentary should be made against an identifiable third person or entity. Witnesses who are to give evidence from a location outside the parliamentary precincts are asked to note that they may not benefit from the same level of immunity from legal proceedings as a witness giving evidence from within the parliamentary precincts and may consider it appropriate to take legal advice on the matter. Privilege against defamation does not apply to the publication by witnesses outside of the proceedings held by the committee of any matters arising from the proceedings.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against either a person outside the Houses or an official either by name or in such ways to make him or her identifiable. Parliamentary privilege is considered to apply to the utterances of members participating online in a committee meeting when their participation is from within the parliamentary precincts. Members may not participate online in a public meeting from outside the parliamentary precincts. Any attempt to do so will result in the member having their online access removed.

The agenda for today's meeting is an issue that we would have raised some time ago. We are scheduled today to discuss the reduction in the farmer VAT flat-rate addition. Our witnesses are from the Irish Co-operative Organisation Society, ICOS. They are Mr. Ray Doyle, livestock environmental sales executive, Mr. Martin McNamara, general manager and society secretary for Clare Co-operative Marts, and Mr. Maurice Lyons, chief executive and secretary of Golden Vale Marts. Cuirim fáilte rompu.

This is an issue that would have come up a number of times with people when they are selling. If the witnesses start with the opening statements, we will do five minutes on them and we will be able to tease it out further with members from there. Mr. Doyle has the floor for five minutes.

Mr. Ray Doyle

I thank the Chair. Irish livestock marts trade over 1.9 million cattle and 1.5 million sheep annually across Ireland, providing true market valuation and guaranteed payment to Irish farmers. The sector is highly regulated by the Government via the Department of Agriculture, Food and the Marine regarding livestock movements, animal welfare, hygiene, etc., and the Property Services Regulatory Authority, PSRA, to ensure financial security of payment to farmers.

All livestock auctions are on a VAT-inclusive basis and the livestock VAT rate is currently 4.8%. The 2026 budget has created a negative anomaly regarding non-VAT-registered farmers selling their livestock in the marts that does not occur if the transaction is completed privately between two unregistered parties. The majority of farmers are not VAT-registered and when they sell their livestock through the mart, they are being deducted 0.3% in VAT, which is the difference between the livestock VAT rate of 4.8% and the flat-rate addition VAT rate of 4.5%.

The flat-rate addition is a special scheme for farmers who are not required to register for value-added tax. These farmers are currently referred to as flat-rate farmers. The scheme is designed to compensate non-VAT-registered farmers for the VAT they incur on their farming costs such as fuel and other inputs. Flat-rate farmers are entitled to receive an amount known as the flat-rate addition on their supplies of agricultural activities.

The rationale for the difference in these two VAT rates lies in the fact that Government has cited a Central Statistics Office, CSO-based VAT calculation as the basis for the change introduced in last year's budget. ICOS has requested the formula underpinning this decision and it has yet to be provided by Government. At a recent meeting with the Minister of Finance and departmental officials, ICOS stressed that if the State needed to address balancing within the VAT system, this could and should be managed over an extended period rather than through a sharp deduction in one year that penalised farmers and marts only to be potentially reversed in another year.

The flat-rate addition must be amended to ensure that farmers selling livestock through marts are not disadvantaged. Livestock sales remain subject to the 4.8% VAT rate, where the flat-rate addition has fallen to 4.5%, creating an anomaly that leaves farmers undercompensated. For every €1,000 traded in the marts, €2.80 is now deducted for the flat-rate addition. Many farmers wrongly think that the mart has deducted this amount for itself, and some farmers are now trading privately rather than through the local mart as a direct result of this Government policy.

One might feel that €2.80 per €1,000 is minimal, but the commission that the marts received to sell an animal is not substantial. In fact, it is often capped at approximately €20, so a seller who gets €2,000 approximately for an animal is now deducted €25.72, including VAT, whereas the total deduction was €14.28 in 2025. This is putting marts at a competitive disadvantage because the seller can sell farm to farm to a non-registered-VAT farmer without having to pay the VAT penalty. Administering the VAT flat-rate addition scheme is also a burden for marts as they are required to ensure which sellers are VAT-registered or not, collect the relevant VAT and return it to Revenue.

In the round, the VAT flat-rate addition scheme has been a cash flow burden for marts. Since the inception of the scheme in 1990, there have been 18 years when the flat-rate addition percentage was higher than the livestock rate and 16 years when it was on a par. The only year when it has been less than the livestock rate is 2026. During the 18 years when the flat-rate addition exceeded the livestock rates, the mart sector had to pay the farmer the addition and wait for a refund from Revenue. For example, assume a seller sold on 1 January and was then paid the addition by the mart. The mart would have to wait until late March to receive the repayment from Revenue when doing its bi-monthly VAT return.

ICOS proposes that the VAT rate addition is never set higher than the livestock rate for any individual year. If the State needs to address balancing within the VAT system, this can, and should be, managed over an extended period rather than through a sharp deduction in one year that penalises farmers and marts, only to be potentially reversed in another budget. The flat rate addition should be adjusted to align with the livestock VAT rate so that the scheme continues to fully compensate farmers, as originally intended, without distorting competition or imposing a hidden cost on livestock producers. Marts must not be discriminated against; non-VAT registered farmers must not be financially penalised; and the flat-rate scheme must remain simple, fair and fit for purpose. This is obviously also a priority in the current inflationary climate, which is burdening rural communities with additional excessive costs.

An Cathaoirleach

I thank Mr. Doyle. I have a list of members offering to speak. Is it agreed that we allow six minutes per member? Agreed. It is a fairly technical matter. Senator Daly has had quite a bit of experience dealing with it. Would he like to speak to it?

Senator Paul Daly

There is not a whole lot I can add. Mr. Doyle has explained it all. This is an unintended consequence. Nobody is going to explain or even understand after any explanation how the flat rate VAT figure is calculated. It is a combination of CSO and Revenue information. When this happened and the flat rate went below the livestock rate, this was an unintended consequence of what Mr. Doyle explained has happened in the mart, whereby farmers bring home more money if they sell the animal to an abattoir because of the VAT structure than if they sell the same animal for the same price in the mart.

After last year's budget, I tabled an amendment in to the Finance Bill - it is on the record - to solve this problem. My suggestion at the time was that they would be equalised and this would never happen again, rightly or wrongly; that they would be tied together, coupled, so that if the flat rate of VAT ever went up again, the livestock rate would go up with it or vice versa. I will outline the outcome of my endeavours. There is no secret to the fact that I am a Government Senator. The Finance Bill was on the floor of the Seanad and if I threw a spanner in the works, I would not just have been changing this issue, I would have brought down the entire Bill. There was a discussion on it and we were told that they would meet on it with ICOS, which did happen, and hopefully they would be in a position to sort it out in this budget.

The only questions I have are for the people who are coming in after the current witnesses. Can they see an issue with it? Is coupling the best way out of this anomaly for want of a better word? What solution would they like to see to this problem to avoid the issues that have happened? I do not want to get into a big long debate about the whole flat rate thing as opposed to registered VAT. We would be here for a month and none of us would be any the wiser when it was all over. I just want to solve this one anomaly where there is a difference in what farmers bring home if they sell in the mart as opposed to the abattoir because of the difference in the flat rate and the livestock rate. Is coupling them so that they would be the same the best solution? Is it the only solution or is there another solution that the witnesses see?

Mr. Martin McNamara

I thank the Senator. There are two ways it can be resolved. The first is if they are both aligned, whether it goes up or down. The alternative is that if it has to stay at 4.8% and there has to be adjustment of plus or minus, it would be dealt with at the end of the year when a guy is doing his tax returns. If there is an adjustment it is very easy to know what it is if he has X amount of farm produce sold. It is easy to quantify whether it is a plus or minus.

Senator Paul Daly

That would be grand for the farmer doing his accounts at the end of the year but how would that work with the transaction in the mart?

Mr. Martin McNamara

There would be no change. We would operate at the current rate of 4.8% on livestock produce. It would be a level playing pitch across the board then both from private sales, abattoirs, factories and marts - the sale price is VAT inclusive at 4.8% - end of story. If there is any adjustment, it can be done by aligning the top-up and the VAT rate or by adjusting the tax return at the end of year.

Mr. Ray Doyle

I will just to add to that. The reason we are suggesting that is because the marts currently are at a competitive disadvantage in that Revenue is imposing the collection of this difference on us. If a farmer sells privately, there is no difference in collection. The problem is that we are being caught for collecting VAT from a non-VAT registered farmer, which is not maybe technically correct because of the anomaly of the way it is structured for the livestock mart.

To expand on Mr. McNamara's point, the way out of that is, the 4.8%, or whatever the livestock rate is going to be, is going to be across the board for all the sectors, both the abattoirs and the marts. If there is an anomaly with the flat rate, like there has been in 2026, it is addressed in the annual returns that every individual farmer makes because not every farmer is VAT registered. That is going to change. If a farmer is registered for VAT, there is no issue. The anomaly is when the non-VAT registered farmer trades in the mart and we collect VAT. The Revenue is forcing the marts to collect it, whereas we contend that should be better placed in the annual returns.

Senator Paul Daly

Has Mr. McNamara seen changes in the number of transactions that he could correlate with this being the reason for the changes?

Mr. Martin McNamara

The throughput in livestock marts this year has dropped by between 8% and 9%.

Senator Paul Daly

Does Mr. McNamara put that down to this factor?

Mr. Martin McNamara

Not necessarily, but it is part of the problem.

Mr. Maurice Lyons

An awful lot of farmers are complaining about fees this year and people hear it across the country. Last year we had a fee of €20 on a €2,000 animal, this year about €25.60 is coming off in the mart, whereas last year it was around €14 because there was a top-up last year and this year there is a deduction. That is a massive proportion of the mart's fees. Everybody is saying the mart's fees have gone up, but they have not gone up.

Senator Paul Daly

That was mentioned in the opening statement. It is part of the anomaly that it looks like the fee has gone up but it has not.

Mr. Maurice Lyons

It is a burden for marts, but a lot of us are farmer-owned. We are trying to do what we can to help the farmer.

Senator Paul Daly

I am conscious that my time is up. Have the witnesses done the sum of what this might cost the State equalise it? Would there be a cost to the State if it were to equalise it?

Mr. Martin McNamara

After the budget it was said that this was a likely cost to farmers of €60 million. Only a proportion of that is being collected because any transaction through private sales is not being collected. The other point is about 40% of livestock trading is done from farm to farm without any involvement of a collection agency or whatever you like to call us.

Mr. Ray Doyle

On the point about €60, million the sum directly attributable to the mart is somewhere between €5 million and €8 million. It is not a big ask of the Revenue to regularise the mart situation. Again, it does not seem like a lot of money, but we will pass by a filling station that charges €2.05 per litre and go to the one at €1.99. That is the rationale we have. This year people are looking at their statements. Every penny is a prisoner this year. They are looking at that. We are being disadvantaged for not a lot of money in terms of the overall VAT revenue. The overall budget is €60 million, but to right this wrong for the marts will not cost revenue that amount.

Senator Paul Daly

It will be between €5 million and €8 million.

Mr. Ray Doyle

Yes.

An Cathaoirleach

The other figure that was referred to was an 8% to 9% reduction in throughput because of a number of factors including this one. What proportion of that is down to VAT? Would the witnesses say it is half of it or is it predominantly due to it? Is there any indication?

Mr. Martin McNamara

It would be very hard to quantify exactly what it is. Now that we are in peak season, it is only becoming more highlighted at this point in the year. Farmers are only realising that Revenue is taking so much off every beast they sell in the mart. I foresee this will create an ongoing problem going forward. There is a perception that the mart is a revenue collector rather than providing a service to farmers.

Deputy William Aird

I welcome the witnesses. I am delighted that we are getting the opportunity to hear their views on the issue. Like others have said, a lot of my questions are for the Revenue Commissioners and the Department of Finance but it is only right and proper that we have the witnesses in here first. We have two people involved in the marts and the other is involved in ICOS, but I want to congratulate the three of them for the work they are doing. It is not easy for marts at the moment. When I was a young fella, I was brought up in a farm in County Laois. We always had marts in Rathdowney, Portlaoise and Mountrath.

Rathdowney was the first to go, then Portlaoise and finally Mountrath. We are left now with Ballinakill. A mart is important to the farming community. It is where people can meet maybe once a week or month. It is where they chat. They used to go for a pint, but that day is gone. Now, they go into the canteen and have a cup of tea or whatever, and that may be their social outlet for the week. Especially in the night marts we have in this country, everybody gathers together and it is a night out for them. That is really what it is.

Of course it is a huge challenge when somebody comes along and decides to drop the VAT rate from 5.1% to 4.5%. That has consequences on the price the farmer is paying to sell the animal. That is the first thing people look at on the docket when they come out after selling. The witnesses' job in marts is to provide the buyers for the customer who is going in with the cattle. That is the number one thing. If they do not have buyers, we will not go with the cattle, calves or whatever the case may be. The single comment people make when they come out is that the cost has gone up to €25 to sell one, it is shocking money and - I thought I would never hear someone saying it - all that the marts are doing is acting as collectors of farmers' money to give to the Revenue Commissioners. It is a question of trying to get across to farmers exactly what is happening. It has nothing to do with the marts from that point of view.

The question I want answered from the Revenue Commissioners, when they come in, or from the Department of agriculture is how a figure is set or who in the Department set it. It certainly was not a politician. I presume it was not the Minister - I do not believe it was for one minute - who said we would drop it from 5.1% to 4.5%. Do people not realise? In my calculations, roughly 1% is worth €10 million. We can see what the drop is worth to the Department, and the marts are collecting the money and sending it on.

What we are trying to do is protect the mart structure. I know what was going on. A person might go to a yard to buy cattle. There are farmers coming in saying they might go to the mart a bit more, but do they realise what that would cost them, including transport? Look at the VAT it would cost them. It would cost them maybe €30 to sell. This is what is going on. The people who brought this measure in did not realise the carnage they would cause. Stand up everybody and be counted. That is why the marts are not getting throughput. I know it, especially from the number of people who were selling calves privately from farm to farm this year. That is also being encouraged by the co-operative system - by the Tirláns of this world - and there is no point in saying it is not. All that means is that the marts have to push that back as well.

I support Senator Daly and salute what he did in bringing it up last year. I have no problem saying that, but I believe in my heart - we will not know until they come in - that this will be changed this year because it is absolutely wrong. The only reason I can think of the system is like this is because they looked at the price of milk and the price of cattle but they did not look at the value of cattle with TB, which was capped at €3,000. A valuer was coming out and valuing them at maybe €3,000, €4,000 or €5,000. We had that discussion in here. That was another blow to farmers at the time. We all know that the grain growers of this country are on their knees as we speak today. This issue is affecting them.

We will not know for a couple of minutes, but if the way I am seeing it is true and 1% is €10 million, it could go up to nearly €60 million. That is very serious. I do not believe that there is anything the witnesses can tell us today that will improve the situation. It is politicians who are elected to here by the public who have to get on to the relevant people, namely, every Minister in the Cabinet, to make sure that this measure is reversed in the budget. It is wrong. What I do not know but would love to know is who actually made the decision and signed off on it. It was a mistake.

I want to say this and I will say it publicly - I encourage people, if they can at all, to keep our mart system going. It is very important. No matter what anybody says, people are getting a true value there.

I am going to say this is well - I know people find it difficult, but online bidding was a huge change. In my father's time, he would not have dreamed of it. He would have had to look at an animal and haggle over everything. However, there are people out there now who are doing it and it has worked well. It will help it.

The other thing that has gone completely is the luck money and that is a pity. When I was a young fellow at the mart, getting the luck money was as important as paying for the animal.

Deputy Joe Cooney

I thank the witnesses for coming in and for the opening statement. I want to welcome my neighbour Martin McNamara from County Clare today. I am delighted to have him here.

Deputy Aird has gone through nearly everything, but I have a question or two for the witnesses. The scheme is designed to compensate farmers who are not VAT registered for VAT incurred on farm inputs. The reduction has raised concerns about the impact on farm incomes, cash flow and the viability of smaller and medium-sized family farms. Is that true? Who wants to come back on that?

Mr. Ray Doyle

Without a doubt, because the small- and medium-sized family farms are not VAT registered. They are the smaller backbone of the approximately 130,000 herd numbers that are there. The vast majority of those are small and medium ones and not VAT registered and are being impacted directly by this.

Deputy Joe Cooney

This reduction in the VAT is having an effect on smaller farmers.

Mr. Ray Doyle

It is having a disproportionate effect on smaller farmers because the larger operators and larger buyers are VAT registered and there is no penalty here. Unfortunately, it is actually targeting the smaller operators.

Deputy Joe Cooney

Where a farmer sells livestock through a mart, will the witnesses explain where the reduction from 5.1% to 4.5% shows up in the transaction? Is the full reduction borne by the farmer or is any of it observed elsewhere in the supply chain?

Mr. Maurice Lyons

In our mart, it is on the seller sheets. It shows what the deduction is there. Last year, it would have shown what the addition was. It is plainly set out in the seller sheet.

Deputy Joe Cooney

Who really gains and loses out with it?

Mr. Maurice Lyons

The marts never gained or lost. We basically just administered it and gave the money to Revenue. This year, however, money is being taken off the seller and given to the Government.

Deputy Joe Cooney

What is Mr. McNamara's view? Is the small farmer losing out here in a big way?

Mr. Martin McNamara

Big time. Last week, we had quite a number of cattle that topped €3,000. Effectively, in that case, there was nearly €8 in VAT per beast taken off on top of the commission. Last year, the seller was getting that. In our situation alone, the top-up to the ordinary farmers, as I call them in our country, was worth €380,000 last year. That was what we gave to ordinary farmers last year in the top-up, which we subsequently reclaimed from Revenue. This year, if the same turnover pertained, we would be deducting €380,000 for the same level of trading. That will just highlight the consequences. It is €760,000 of a twist in 12 months in just one small county alone.

Deputy Joe Cooney

Does Mr McNamara think that if this continues, we are more than likely going to put small farmers out of business?

Mr. Martin McNamara

They are under pressure in every walk of life anyway, but it is becoming very critical. Last week, a guy came to me and €23 was deducted. We had to explain that that was for Revenue and we had nothing to do with it. We only collect it and give it to Revenue. When this raised its head after last year's budget, our hands were tied. We said that the only recourse people had was to go to their local politicians or whoever because they were the people who dictated these things.

Deputy Joe Cooney

I presume it is not going to affect the large farmer as much as it is affecting the small farmer.

Mr. Martin McNamara

It is irrelevant to a farmer who is VAT registered because they are paying 4.8% and that is it. They can claim back the VAT that they pay in purchases. It is just the non-registered farmer, and I would say that 90% of the farmers we are dealing with are non-registered farmers. This scheme was originally brought in to compensate those farmers for the input costs and to keep it simple.

Mr. Ray Doyle

It is the local livestock mart that has been undermined and unfairly treated here. Now some farmers will not come to the mart because they are concerned about the deductions. It is the local livestock mart that is going to be at threat because if our numbers drop further still, we are left with high fixed costs. It is simply the last 5% to 7% of numbers that might give a mart centre a profit. It is the local livestock mart that is actually going to be under more jeopardy if this continues because our numbers will fall further. It is a high-cost model of doing business with a mart if you are being deducted the VAT, when you do not have that deduction if you are selling privately. It is unfair to the livestock mart system. All we are looking for is fairness.

Deputy Joe Cooney

Is it possible we could see more marts closing because of these criteria? We have seen a lot of marts over the last number of years that have closed down. We do not want to see any more of them closing. A mart in Sixmilebridge has got back up and running again. Is it going to be a possibility going forward that we could see more of them closing down?

Mr. Martin McNamara

As Mr. Doyle has said, marts are under more and more pressure from the regulation that is there, the cost of compliance and the cost of doing business. As I said, that 5% or 10% extra stock is the cream that can be achieved in the profit line without any extra costs. If you keep reducing throughput, however, our game is a numbers game. It is as simple as that.

Deputy Paul Lawless

I thank the witnesses. It is very clear to me not only that the differential VAT rate poses a threat to marts but also how unfair it is to small farmers who are unregistered for VAT. Most of the questions are for the next witnesses, to be honest, but I thank those present for their presentation. In terms of quantifying the numbers here, across the mart network, what is it costing in terms of that differential? What has been taken out of farmers' pockets that the witnesses are seeing so far this year?

Mr. Ray Doyle

Ironically, that would be a question for the next witnesses before the committee. They are the people who allegedly have the accurate CSO figures for what the actual turnover is or everything. Our estimate is that it will be a penalty of at least €5 million to €8 million per the mart network, but it could be way higher than that. I do not know because the actual turnover figures will be a CSO figure for the livestock market trading or what was turned over at factory level or whatever. They are all CSO figures which I would not have off the top of my head, unfortunately.

Deputy Paul Lawless

Is Mr. Doyle seeing an increase now as farmers are realising the differential? Is he seeing an increase in terms of private livestock sales? Is that on the increase since January, February or March? Is there a growth in those figures?

Mr. Ray Doyle

The figures for both private setting and mart setting have been down this year since the start of the year. There is less livestock in the country than there has been in the last five years, on a rolling average. However, the drop in livestock sales is higher than the drop in private sales. We have to assume that differential in percentage is a direct result of the fact that it is now a higher-cost model to trade in the mart. For the first six months of the year, that differential was running at approximately 3% in the drop in private sales versus mart sales for the year to date. The private sales were back about 5% to 7%. Please do not hold me to the figures; they are approximate. The mart sales were back significantly. They were back almost 11% nationally for the first six months of the year. There is a big differential there. I cannot and will not attribute it all to the VAT, but it is definitely a fairly sizable contributing factor to this.

Deputy Paul Lawless

Mr. McNamara mentioned that there are two possible solutions. The first one would be to align the VAT on the flat rate and also on the livestock. The second one is the suggestion around aligning the taxation at the end of the year. Do the witnesses have a preference? What is their proposal in relation to both of them? What are the concerns they have around each?

Mr. Ray Doyle

In a short answer, we would not mind which one it is, as long as it is fair to us. The next witnesses might have their preferred option, but obviously aligning the VAT rates, like they have been for 16 of the last 24-odd years, would be the preferred option because it is fairer to everybody.

Deputy Paul Lawless

Given that the witnesses are essentially doing the job of Revenue in this regard, in terms of collecting VAT from an unregistered VAT farmer, which is unique in many respects, have they calculated the financial cost and the human cost to their network of actually engaging in that? Is Revenue providing any type of assistance in relation to that?

Mr. Maurice Lyons

We do not have a cost for it, but we have always actually administered it. Before, when it was a top-up, we were actually giving them the top-up. As I said earlier, if you sold an animal on 1 January, we got it back from Revenue at the end of March, whereas the farmer got it on 1 January. We had that cash flow cost, plus the administration cost. We would have to figure out who is registered and who is non-registered every few years and make sure that is correct, so there was a lot of administration with it. As I was saying earlier, a lot of us are farmer-owned so our objective is to do what we can to help the farmers. We were happy to do that, but now it is causing significant damage to our business. That is why we are here. That is why we are raising it as well.

Deputy Michael Fitzmaurice

I welcome the witnesses. I think there are a few critical things here. Mr. McNamara stated earlier that in his own mart €380,000 went to Revenue, and before that it was going back to farmers, to put it simply. Would that be fair to say?

Mr. Martin McNamara

Last year, with the top-up being where it was, we paid out €380,000 to our local farmers in the top-up of VAT, and we had to finance that on a bi-monthly basis until we got the refund back from Revenue. This year, we are deducting that at source.

Deputy Michael Fitzmaurice

There was €380,000 less in Clare marts around Mr. McNamara's area. If we multiply that around the country, especially with weanling sales at the moment, it would account for a lot of money. Less money is going into farmers' pockets, to put it very bluntly.

Mr. Martin McNamara

That is correct. If we take the complete flip, if we have the same turnover, which we will not have this year, it would be a switch of €760,000. They are penalised to that effect this year.

Deputy Michael Fitzmaurice

Let us call a spade a spade here, in fairness to marts. I think the public out there needs to know. Marts have been blamed in the wrong for the last six, eight or 12 months. Everyone said they had gone up in prices but it was actually the VAT that they had to collect for Revenue. To be clear, and I heard Mr. McNamara stating this, if you go into a factory it is not applicable and if you do a private person-to-person sale it is not applicable. Marts have the only disadvantage in this. Is that fair to say?

Mr. Martin McNamara

That is correct.

Deputy Michael Fitzmaurice

There is only one way of solving it. I know Paul has done a good bit of work, in fairness to him. Would it be the simplest way if both were aligned? With the best will in the world, farmers have enough to do besides thinking of more stuff going into the accountants at the end of the year, and more pulling and dragging in the line of what you have to do. Would it be the simplest way if all politicians here made sure that inside the next two weeks it was lobbied fairly strongly to align them? Would that make it the simplest solution to everything?

Mr. Martin McNamara

That would be good.

Deputy Michael Fitzmaurice

Right. I know Mr. Doyle spoke about the formula. I was talking to Brendan Egan this morning as well in Castlerea about this. This formula is like an invisible formula. No one seems to get it. We might try to get it. I might put a proposal to the committee that every one of us would ask Revenue that we would be supplied with this magic formula of how it is done up in order that we could supply it to the witnesses, if the committee agreed with it.

Senator Paul Daly

I second that the committee would request that.

Deputy Michael Fitzmaurice

We would get the formula and send on a copy to ICOS, if it is looking for it, and to all the co-operatives. Mr. Doyle will look after all the marts around the country with it so that people would know. It would be a help. Does it put more of an onus on the marts? Do they have resources to put into that as well with staff to make sure it is paid to Revenue? Does that cost them more?

Mr. Ray Doyle

Yes, it does because we have to now ascertain who is VAT registered and who is not to have the invoices correct in the first place, and then there is the associated paperwork to make the deductions. As Mr. McNamara and Mr. Lyons have said, we have to finance it.

Deputy Michael Fitzmaurice

Just that people looking in will understand, when you sell an animal in a mart, if they are €3,050, that is inclusive of VAT.

Mr. Ray Doyle

Yes, and therein lies the problem. When you buy an animal in a livestock mart ring, it includes VAT, whereas most of the livestock produce is traded on a VAT exclusive basis and then the VAT rate, whichever that is, is added back. At the fall of the hammer, it includes the embedded livestock rate.

Deputy Michael Fitzmaurice

What happens when you kill an animal?

Mr. Ray Doyle

I will let Mr. McNamara take that.

Deputy Michael Fitzmaurice

If it is €6 or €7 a kilo, is that plus VAT?

Mr. Martin McNamara

If it is €7 a kilo, it is €7 a kilo inclusive of VAT. If you are VAT registered, the factory will apply the 4.8% VAT inclusive on the €7. If you are a flat-rate farmer, they will apply the 4.5%. We have documentation to prove that.

Deputy Michael Fitzmaurice

If you are a farmer to farmer-----

Mr. Martin McNamara

With a farmer to a farmer, a thousand is a thousand.

Deputy Michael Fitzmaurice

A thousand is a thousand. It is very hard, if you are Revenue, to know where you are picking up this money in the figures given. If the marts are losing business over it and there is more trade going on farmer to farmer, obviously, Revenue will not be getting that. It is nearly a red herring for it, going by what the witnesses are saying.

Mr. Ray Doyle

That is why we contend that probably the correct place for it is at people's annual tax returns. I understand the problem and the issues that this may be adding to the burden of tax returns for farmers, but it definitely is the most logical one if you are Revenue because it traps all the possible VAT, privately and marts, whereas in the current situation we are the only ones getting penalised.

An Cathaoirleach

The next speaker is Deputy Kenny. He has a fairly strong view on this and has been raising it with us.

Deputy Martin Kenny

Yes, it is something I have brought up a few times and I put a couple of parliamentary questions to the Minister. First, I thank all the witnesses for their presentation. It was very worthwhile. On 25 June I got an answer to a parliamentary question that said €61.5 million would be the gain to Revenue if it reversed it to the way it had been before. That is approximately the kind of numbers Revenue seems to be calculating it on. I assume, when it was a situation that the VAT rate was at 5.1%, it was approximately €60 million annually that was going to the farmers and therefore was a positive for the farmer. For many years, as we know, it was equal, and therefore it balanced out each way.

The other thing Mr. Doyle raised in his opening statement was that ICOS was not given access to the formula. I had a parliamentary question on 7 July and the reply stated that "The flat-rate scheme is governed by Articles 295 to 305 of the EU VAT Directive and, as required under Article 296, the level of the flat-rate addition is reviewed annually by reference to macro-economic data". The formula that is used, which is calculated each year, is that the "Flat Rate % = (VAT Incurred by Unregistered Farmers on Inputs ÷ Agricultural Output of Unregistered Farmers) × 100". Obviously, you would have to put numbers in place of that formula and work it out, but that is basically what they are doing. They are taking the difference between the two and dividing them and then multiplying them by 100. That seems to be the formula that is used. In the opening statement from Revenue it repeats that this is the formula it uses, so it has put it out there in the public before. I do not understand why it did not give it to the witnesses, which is very peculiar, but we will ask the officials about that when they come in.

An Cathaoirleach

It will be on the committee website as well.

Deputy Martin Kenny

It will be on the website as well. That is basically how it is calculated. The issue we run into here is that what I get from what we have got from Revenue and from the answer to this parliamentary question is that the flat rate is something that will possibly vary each year, depending on macroeconomic data and all of that, and that is governed by this EU directive. It will be very unlikely that Revenue will be able to change that or set that. However, it can change the livestock rate. There is nothing preventing Revenue from doing that. My understanding is that Revenue could bring it down or up to meet whatever the flat rate is at, and that would equal it out. Have the witnesses got any information as to whether there is any reason Revenue would not be able to do that? From what I have read in all the documents we have been provided with, there seems to be no reason or no inhibition that would put it in a place where it would not be able to do that.

Mr. Ray Doyle

No. When we met the officials in Revenue, they were not as descriptive as the Deputy but they did refer to that three-year moving average, not just a simple one-year one which the Deputy mentioned. In our meetings with those in Revenue, they were reluctant to touch the flat-rate addition because the statement was there could not be three rates of VAT, from my recollection of it. Regarding dropping the livestock rate, back in 2000, the livestock rate used to change in every budget. Then the livestock flat-rate addition would move then in lockstep. That is the obvious redressing of this, rather than Revenue relying on the three-year moving average. What it has given sounds simple but yet we still do not know what the weighting or the contribution of each agricultural produce piece goes into that.

Deputy Martin Kenny

The Minister for Finance can change the VAT rate. As we know, he introduced - or renewed - a VAT rate for the hospitality sector at 9% last year. The Department can do that at any time. There is this thing that it cannot be done. Of course it can. That is not an issue at all.

In my part of the country we have a lot of marts. The Golden Vale mart in Carrigallen is beside me and last Saturday there were sellers with weanlings at €2,500 each. I was envious of the man who was going to buy them and try to make money on them after, but there you go. Obviously, there is a good price for cattle at the moment. There is a bit of competition in the mart and that should, you would imagine, be bringing livestock to the marts. I do not know whether it is doing it or what the issue is that it has fallen back. It is hardly this alone. There must be other things that are causing that. What other issues do the witnesses think are pushing farmers away from using the mart?

Mr. Ray Doyle

There is definitely a drop in numbers. The national herd has definitely dropped in numbers, and that is a combination of good and bad news. We have had very high live exports for the past ten years. We have eroded some of the substrate we would have had to sell in the marts. This is a contributory factor to that. We are not in any way suggesting it is just the VAT rate has dropped our livestock numbers but-----

Deputy Martin Kenny

It is not the only thing. Does Mr. Doyle think that the fact that there are fewer cattle in the country is probably the primary reason?

Mr. Ray Doyle

Yes, it is, but it is accentuating it when farmers go to trade them. If farmers are selling less stock than they did, they are most definitely focused on the lower numbers they have. Again, we are highlighting the fact that there are a lot of microscopes on this from every farmer selling animals and it is-----

Deputy Martin Kenny

It is the fact that they see it on their ticket when they come out of the mart.

Mr. Ray Doyle

It it is simply unfair to the marts when no other sector is getting hit with this. That is our main contention here.

Deputy Martin Kenny

If they sell farmer to farmer, neither farmer is registered for VAT and therefore nobody is charging anybody VAT. When farmers sell their animals elsewhere, if they sell it to the factory or to other places, technically could Revenue start to put an obligation on farmers to include this in their VAT return? They do not have a VAT return because they are not registered, but on their tax return?

Mr. Ray Doyle

Again, that could be a question for Revenue afterwards. The Revenue interpretation here is that the mart has purchased the livestock, the mart itself is VAT registered and then it sells the livestock to the seller. We are just an agent to the transaction, but Revenue interprets it that we have purchased from a non-VAT farmer, the mart itself is VAT registered, and therefore you must account for the VAT because you have sold it to the seller. We never buy the animals. Our contention to Revenue is we have not bought the animals and therefore it is incorrect to levy this VAT deduction on us.

Mr. Maurice Lyons

A few years ago, a farmer selling for €1,000 at the mart would get the VAT top-up. I believe there have been 18 years where the addition percentage has been above the livestock rate. If the farmer did that through the annual return system, they might be able to get the top-up in that annual return. For most of the years, the farmer has actually been getting the top-up. By going farm to farm, the farmer would actually be losing out.

Deputy William Aird

The way it stands now, the farmer is getting caught.

Mr. Maurice Lyons

They are now selling in the mart but for the bulk of the time, they were getting the benefit of the top-up.

Senator Eileen Lynch

I thank the witnesses for being here today. It is quite a simple issue even though it is quite a technical one. I wish to go back to discuss the effect on sales. I know that Cork marts are down about 10% or 11% this year. Macroom mart is my local mart and it has seen a decrease. Obviously, this matter does not account for all of that, but how big a role does it play? Given its impact on marts in local towns combined with other factors, are we likely to see mart closures in the future? Things like this obviously do not help. It is probably only the cause of a percentage of the decrease this year, but it is definitely playing a part.

Mr. Martin McNamara

It is definitely not the sole reason. There are a number of contributory factors. It is an issue and has been coming more to the fore in recent times. Marts might trade 40% of the business from September to December. There are guys who some days might be selling €120,000 or €130,000 worth of cattle on a day. The 0.3% of that is fairly substantial and the farmers will start asking where it is going.

Senator Eileen Lynch

We are seeing such a rise in farm-to-farm sales and private sales because they are not affected by that when dealing with non-VAT registered farmers. In doing that, however, farmers are losing the protections provided by the mart in terms of pay guarantee, traceability and price. Will this have a negative impact on trade and price if there continues to be an increase in private sales over mart sales?

Mr. Martin McNamara

Down the years, no matter what came and went, the marts were always the price setters for livestock and all private sales or any other sales were related in one way or another to the mart prices. We saw it with foot and mouth disease in 2001. The minute the marts opened, the price of cattle shot up by €150 the following week. We also saw it after Covid. There were restrictions during Covid and everyone was locked down. No one knew what anything was worth. The marts are critical infrastructure for the trade in livestock and they need to be nourished. The farmer always has a choice when he comes to a mart. They can say "Yes" or “No” when the final hammer comes down. They are still the owner of those animals until they give the go-ahead. It is imperative that the structure of the marts be maintained for farmers in general.

Mr. Ray Doyle

I might add to that. The marts obviously secure and guarantee payment because they register with the PSRA. That piece does not happen with farm-to-farm trading. As Mr. McNamara said, if more people decide to trade privately, they will not know what the true value is and the payments cannot be as safe and secure as a mart registered with the PSRA. This leads to a perfect storm situation with fewer sales in the mart, more people not knowing what their livestock is worth and people dealing through less secure methods of payment for that livestock.

Senator Eileen Lynch

Mr. Doyle spoke briefly about the ICOS engagement with Revenue. What is the feedback from Revenue in general? Other than the ICOS pre-budget submission to the Department of Finance, which I have seen, what kind of engagement has it had with either the Minister or departmental officials?

Mr. Ray Doyle

Senator Daly facilitated a very good and productive meeting with the Department of Finance and Revenue officials on this. We discussed at length the issues that we have again repeated here today. What the committee will hear later from them will not be news to them or to us. They understood our situation, but having said that, they were simply stating the fact that this was EU regulation regarding flat-rate addition. It is a three-year moving average. Their hands were tied and that is the way it was. The interpretation that the mart has bought the animals and sold them again was one that they did not seem to want to comprehend or swallow. That is one of our contentions. We never own the animal. We are simply an agent in the transaction. That is the hook that means we must collect the VAT under the VAT legislation.

Senator Eileen Lynch

I ask Mr. Doyle to clarify that. The point he has been making about the mart as a collector of VAT for non-VAT-registered people when at no point during the sale is it the mart's animal-----

Mr. Ray Doyle

If two non-VAT-registered farmers-----

Senator Eileen Lynch

How is that obligation on the marts? Is that under the VAT legislation? If the marts refused to do that and the farmer had to do it directly-----

Mr. Ray Doyle

We are VAT registered and are obliged to provide a VAT code. Therefore, we must collect the VAT. Revenue has interpreted this as us having bought and resold the animals, so we must collect the VAT. Obviously, this extra piece is paid to Revenue. However, if the exact same animal is sold privately between two non-VAT-registered farmers, there is no obligation to collect the VAT because two non-VAT-registered farmers have bought and sold an animal, so there is nothing to collect. The mart itself is VAT registered. The non-VAT-registered farmer is deemed to have sold it to the mart but we have not bought it.

Senator Eileen Lynch

How is it deemed to have been sold to the mart? That is the part I have difficulty with.

Mr. Maurice Lyons

That might be a question for the Department of Finance. My understanding is that that is in the VAT legislation. The Department has deemed that there is a VATable transaction at that point.

Senator Eileen Lynch

That is despite the fact that the ownership at no point passes to the mart. It passes to-----

Mr. Maurice Lyons

At no point does it pass legally, but legislation is there that captures the mart and makes the mart do this. That is my understanding.

Deputy Natasha Newsome Drennan

I am sorry that I missed the opening statement. There are lots of issues here, but the one massive issue is that farmers are being hit and numbers are dropping. Farmers are getting out of farming because of one issue after another. For example, on Brazilian beef, they cannot compete with these guys. It might seem a small difference in the VAT, but this is added to the cost of diesel and everything else. These things are all added on. It is the cost of running a farm, the cost of fertiliser, the cost of feed. It is never-ending. That is €61.5 million gone from rural communities. A lot of small villages can no longer field a GAA team. They cannot keep schools open. They are losing teachers. This is money taken directly out of those communities.

We are suckler farmers. We do not finish the cattle and would normally sell straight to the mart. We use Kilkenny. It is great going into the mart and bringing the kids in. They get to learn about the trading of cattle. They do not learn that if people are selling cattle out of their own yards. They do not see the trading. The kids would have their own cows, which calve. They bring in their offspring and it is a great learning curve for them.

I am not registered for VAT. If Deputy Kenny was selling me a VAT-rated animal privately, would there be a VAT collection there?

Mr. Maurice Lyons

Is the Deputy asking about a case where neither of the seller nor purchaser is registered?

Deputy Natasha Newsome Drennan

No. I am asking what happens if Deputy Kenny is registered and I am not, and we are selling privately. Would VAT be collected from Deputy Kenny anyway? He would have to do his VAT-----

Mr. Martin McNamara

On a private sale like that where there is a VAT-registered farmer, what is called a docket can be done where Deputy Kenny would issue the Deputy with a docket for €1,000. It would be broken down between the VAT exclusive amounted and the VAT amount. Deputy Newsome Drennan cannot reclaim it but Deputy Kenny has pay that as a VAT-registered farmer.

Deputy Natasha Newsome Drennan

It is the same as doing VAT returns for a business after selling a product. If I go through one of the marts, my name is on the blue card and I sell that animal on. It passes through the mart, the mart does not get its name stamped on the blue card and the person getting the animal becomes the new registered owner. The mart is not the owner. The farmer is using the service and we are paying for that service.

It just does not make sense. The mart is not the next owner.

If I was going through the factory and bringing my animal - and if I was registered for VAT, which I am not - it would be the final owner. You are selling to the factory. It is the owner. It is not going to be passed on to another farmer and that is the end point but the mart is completely different, in that you are going in one door and out the other and that is it. It just seems to be one hit after another.

Going back to when it came in first, farmers were blaming the marts. That is what it was. They were blaming the marts and they just could not understand what was going on here. I think that is well and truly cleared up now anyway but how many more things are going to happen? As Mr. McNamara said about the VAT, they did it for businesses, big chains, McDonald's and the like and were able to just give them the VAT cuts. I do not see how; they are saying it is the EU they have to follow that. It is a little bit like what are they doing with the €61.5 million because it is not coming back to us.

I have read their opening statements and what they are going to say is that there is nothing they can do and their hands are tied. What can we do here? It is for the greater good of rural Ireland.

Mr. Martin McNamara

It is very simple, and at the simple stroke of a pen, it is parity. Up or down, it is parity. That is a simple stroke of a pen. It may not need any legislative change; what you call a special instrument, or whatever the case may be, can be introduced. It is a very simple thing. It is uncomplicated and all it is doing is applying equity right across the board for people trading in livestock.

Deputy Natasha Newsome Drennan

When it came in, what kind of notification did the witnesses get that this was going to happen? There would be more administrative work on their behalf to sort out who is flat-rate registered and who is not, and the to send on that extra money to Revenue. Did anybody speak to the witnesses about it?

Mr. Martin McNamara

The only notification we got was when it was announced in the budget. There were different interpretations at the time of how it was going to apply and we sought clarity on how it would apply to ourselves. It was only at that point we realised that it was going to be a negative in a farmer's statement. At that stage, as Senator Daly said, it was coming up to the Finance Bill and there was pressure to try to get it on the agenda and get change there but there were time constraints. I think something definitely needs to be done before this budget.

Deputy Natasha Newsome Drennan

The witnesses sought clarity. No clarity came to them. They went looking for it, basically.

Mr. Martin McNamara

We had to go look for it.

Deputy Natasha Newsome Drennan

Okay. I thank Mr. McNamara.

Deputy Danny Healy-Rae

First, I thank the witnesses for coming in here this evening and clarifying. I was not here all the time but I was listening to them on the television monitors. I thank them for explaining what has happened. It is certainly a lot of money out of farmers' pockets and out of circulation. They said it would mean a loss of €380,000 in Clare. I do not know how many marts are there or what the population of cattle is or sales, but it will certainly be more than that in Kerry. I am disappointed with that because I know, as does every fellow with a cow or a calf, that there is no sign that the Revenue Commissioners or anyone giving you a hand to pull a calf in the middle of the night when there is a battle on to see whether he will survive or die.

It is very wrong that the Revenue Commissioners are doing this and I cannot understand how this Government can stand over something like that. We are listening to a lot of boasting and bragging about what was given out in these packages going back a few months, and then it comes around that certain fellows did not get the package at all because they were not up to date with Revenue, as they had infringements with slurry and small things like that. They were not entitled to and did not get the package, or the Revenue Commissioners said; they were not paid anyway, there was money left over and there is still money left over. Here we see Revenue and the Government going deeper into farmers' pockets at a time that they are fighting very hard to survive. The price of milk has gone down. Cattle are staying level, maybe, but at the same time they are way down from last year. At the same time, costs are going up, whether it is for meal, fertiliser, diesel or anything. Everything is going up day by day.

The reduction from 5.1% to 4.5% is having a very adverse effect on farmers who go to the mart. We are not blaming the witnesses; they are only collectors and they are not gaining or losing out of it but, at the same time, there are more administration costs to sort it out. It is wrong because you should not be trying to get VAT out of a man that is not registered for VAT, or a woman either. It is very wrong. That is the real point of it. When there is an advantage to sell privately, every sale less for a mart is jeopardising. We have a small mart in Kenmare and we value and treasure it. It is very handy for people in Kilgarvan or Sneem to make it off with a small amount of calves, sheep or whatever and we appreciate that mart. It is struggling as it is something like might prevent a few sales. Yes, farmers had their noses cocked about this. The marts are taking away more when they look at the slip and every bob counts.

I am glad that the witnesses have explained and highlighted it because the Revenue Commissioners and the Minister for agriculture need to address this issue. Like Mr. McNamara said there, it is just policy. The Minister for agriculture, who is the Minister of the day, and the Minister for Finance will have to rectify this in the budget one way or another and sort it out because farmers are being hit left, right and centre for every cost. Every cost is going against them. The dosing, the sprays and all those things have gone lightning mad dear altogether. To keep the land and the cattle in shape is costing way more and the margins are way less.

Some people might think this is not much. What is it? It is 0.7% or 0.8% but that is out of the poor farmers' pockets. Like I said, there is less help around every yard now. There is no one to help a farmer. They are living far more dangerous lives. There is no one waiting to help them. We see so many farm accidents, simply because they are on their own. They are on their own when they are dealing with Revenue, as far as I can see, because they are being robbed, left, right and centre. It is up to us in this committee to highlight it, or above in the Chamber when the budget talks start, and to let the Government know that farmers have had enough.

I saw a small farmer - a really small farmer, and he was not even in County Kerry - and he explained his position to me. I asked him how he got on with the package he was supposed to get for the diesel. He replied he did not get it because he had an infringement with the slurry and they said he was not entitled to it. It is the same way with the farmers who were not up to date with these very same Revenue Commissioners, who are taking this massive amount of money out of them again. If they were not up to date with their accounts, they did not get the package either. What is good for the goose is good for the gander.

Chairman, I am asking that we highlight this strongly and unanimously. I am not longer a member. I cannot vote here but I can certainly talk on behalf of the farmers and the people of Kerry who have been disenfranchised by this wrongful act.

I am asking the committee, as a unit, to make it plain and simple to the Minister for agriculture that he will have to reverse this along with the Minister for Finance.

An Cathaoirleach

The Deputy's point is well made.

That is everybody who has offered to speak. As the time has been used up, that brings this session to a close. We have a number of other witnesses whom we will have in again later, so we will suspend the meeting.

Cuireadh an suí ar fionraí ar 4.40 p.m. agus cuireadh tús leis arís ar 4.50 p.m.

Sitting suspended at 4.40 p.m. and resumed at 4.50 p.m.

An Cathaoirleach

Before we begin, I draw to the witnesses' attention that witnesses giving evidence from within the parliamentary precincts are protected by absolute privilege in respect of the evidence they give to a committee. This means that a witness has a full defence in any defamation action for anything said at a committee meeting. However, witnesses are expected not to abuse this privilege and may be directed to cease giving evidence on an issue at the Chair's direction. Witnesses should follow the direction of the Chair in this regard and are reminded of the long-standing parliamentary practice to the effect that, as is reasonable, no adverse commentary should be made against an identifiable third person or entity. Witnesses who give evidence from a location outside the parliamentary precincts are asked to note that they may not benefit from the same level of immunity from legal proceedings as witnesses giving evidence from within the parliamentary precincts and may consider it appropriate to take legal advice on the matter. Privilege against defamation does not apply to the publication by witnesses outside of the proceedings held by the committee of any matters arising from the proceedings. All the witnesses participating in this session are present in the room.

The agenda is that we are continuing on the reduction in the farmer VAT flat-rate addition. We have had considerable discussion on it, and there is quite a bit of detail in the documentation the witnesses have sent forward for members to review.

The committee will hear from the following: from the Department of Finance, Mr. Niall O'Sullivan, principal officer, domestic and indirect tax policy; and Mr. Ciaran Denny, assistant principal, VAT. Fáilte romhaibh. We also have representatives from the Revenue Commissioners: Mr. Cathal Jenkinson, principal officer; and Mr. Chad Egan, principal officer, indirect taxes policy and legislation division. Fáilte romhaibh.

The witnesses have circulated the various documentation on the topic. I will leave them five minutes for the opening statement, and then we will go into questions with the members.

Mr. Niall O'Sullivan

I thank the Cathaoirleach and committee members for the invitation to speak to them about the reduction in the flat-rate addition payment for farmers who avail of the flat-rate scheme. I am a principal officer with responsibility for indirect taxes in the domestic and indirect taxes division of the Department of Finance. I am joined by my colleague Mr. Ciaran Denny, from my unit, and colleagues from the Revenue Commissioners, Mr. Cathal Jenkinson and Mr. Chad Egan.

Along with other officials who are present, I am bound by budget secrecy not to comment on matters that may be the subject of budget decisions. This includes any possible change to the farmer's flat-rate addition or to the livestock rate in the upcoming budget.

Given the committee's invitation, I will make a brief statement on the farmer's flat-rate scheme and the underlying legal basis for it as set out in the EU VAT directive. Following that statement, I will be happy to discuss issues of particular interest to committee members.

The farmer's flat-rate scheme is a simplification arrangement specifically permitted under the EU VAT directive. It is designed to reduce the administrative burden for farmers by allowing unregistered farmers to be compensated on an overall basis for VAT on their inputs while remaining outside of the VAT system, thereby avoiding the burdens associated with registration and filing. The scheme allows unregistered farmers to add a percentage charge, known as the flat-rate addition, onto the amount they invoice VAT-registered businesses whom they supply with agricultural goods and services in the course of their farming business. Unlike VAT-registered businesses, unregistered farmers are not entitled to a deduction for VAT incurred on individual inputs using their farming business. Instead, the scheme permits them to charge and retain the flat-rate addition in order to compensate them on an overall basis for the VAT across all their inputs. The Department understands that over 85% of farmers avail of the flat-rate scheme.

Under EU law, the level of the flat-rate addition is reviewed annually in order to ensure that the scheme continues to allow for the unregistered farming sector to be fully compensated on an overall basis for the VAT it incurs. In any given year, the review may result in an upward or downward change to the flat-rate addition or it may lead to the rate remaining unchanged. In each case, however, the percentage applied is the one shown to give the unregistered farming sector full compensation for its input VAT as allowed by the directive. The flat-rate addition itself is calculated using a statistical formula and must be based on macroeconomic data as set out under the directive. The technical exercise of calculating the flat-rate addition is undertaken by the Revenue Commissioners, and Revenue advises the Department of the outcome of this technical exercise in order that any change in the rate can be included in the budget. My Revenue colleagues can answer any questions committee members may have on the calculation of the flat-rate addition.

I will say a few words on the livestock rate. Following the reduction of the farmer flat-rate addition to 4.5%, it is the now case that it is lower than the long-standing 4.8% VAT rate applied to livestock. The flat-rate formula takes account not only of the inputs taxed at the livestock rate of 4.8% but also of those taxed at the standard VAT rate of 23%, the reduced rate of 13.5% and the second reduced rate of 9%. Therefore, there is no direct alignment between the flat-rate and any particular VAT rate, including the livestock rate, as the flat-rate calculation fully reflects on a continuing basis the actual VAT exposure of the flat-rate farming sector across the entire range of inputs. The fact that the flat-rate is currently set at a level which is below the livestock rate does not create any unfairness in the tax system or mean that farmers are disadvantaged, in the same way as farmers were not advantaged for the many years when the flat-rate was set at levels which were above the livestock rate. It is the case, however, that due to the business model operated by livestock auction marts and the current differential between the flat-rate and the livestock rate, some farmers may now prefer to engage in direct sales to other farmers or sales to meat processors. While the individual difference in any one sale is marginal, where a farmer is making multiple sales there may be a sufficient difference to incentivise sales to channels other than marts.

There is scope to reduce the livestock rate to match the flat-rate payment if it is the case that the flat-rate addition for 2027 is below 4.8%. It should be noted that the flat-rate is calculated based on the estimated liability for farmers over three years, including that applied to livestock.

The work on the rate for the farmer's flat-rate addition will be finalised in advance of the budget. As with any other year, as I said before, the flat-rate could increase, decrease or stay unchanged, depending on the macroeconomic figures used to calculate the rate.

In summary, any change to the farmer's flat-rate addition is determined by the requirements of EU VAT law and does not permit the Minister of the day to change the manner in which it is calculated. I hope this information has been helpful. Within the context of budget secrecy, my colleagues and I would be happy to take any questions members may have.

An Cathaoirleach

I thank Mr. O'Sullivan. I am conscious that further documentation was circulated to members as well.

I call Deputy Newsome Drennan.

Deputy Natasha Newsome Drennan

As I said in our earlier session, any money that comes out of farmers' pockets in the mart is a direct hit on rural Ireland, and that is an issue for all of us. We are mostly rural and it is a direct hit. When money comes out of local communities, the schools and everything else decline. That cannot happen.

I would like to get my head around the flat-rate. Mr. O'Sullivan says it is set by the EU. How is the Minister able to change VAT rates here? Can the witnesses explain that to me? I am talking about hospitality.

Mr. Niall O'Sullivan

VAT rates can be changed. We can apply reduced VAT rates if it is a category of goods or services in annexe 3 of the VAT directive. Reduced rates can also be applied in circumstances where there has been an historical derogation. It entirely depends on whether goods or services are in annexe 3, they have been subject to an historical derogation, or the specifics of the EU VAT directive. In the case of the flat-rate scheme, that is covered by Articles 295 to 305 of the VAT directive. The directive sets out in some detail how it is to operate and specifies the formula. That is essentially what we must follow.

Deputy Natasha Newsome Drennan

If we were to decide to change it, what would happen?

Mr. Niall O'Sullivan

Let us take last year as an example. Last year the rate was reduced from 5.1% to 4.5%. The figure of 4.5% was determined by the formula to give full compensation on an overall basis for the farming sector. If we were to decide last year, for example, to keep it at 5.1%, that would be a situation where it was deemed to be overcompensation and we would be in clear breach of the VAT directive because within those articles it specifies that over-compensation is not permissible.

Deputy Natasha Newsome Drennan

Would that mean a fine for Ireland? How would that work out?

Mr. Niall O'Sullivan

In those circumstances, we would anticipate that the Commission would be straight on to the member state and would probably initiate infringement proceedings.

Deputy Natasha Newsome Drennan

Changing the VAT rate to 9% for hospitality-----

Mr. Niall O'Sullivan

Sorry, I did not hear that.

Deputy Natasha Newsome Drennan

We changed the VAT rate for hospitality to 9%. Is that not-----

Mr. Niall O'Sullivan

That is covered by a different part of the VAT directive and there was that flexibility.

Deputy Natasha Newsome Drennan

Is there absolutely no flexibility on this unless Europe says so?

Mr. Niall O'Sullivan

Not unless those articles were changed. We have to follow the formula that is set down within those articles which cover the flat-rate scheme. Again, in that context, over-compensation is not permissible and infringement proceedings could follow. In fact, the Commission could also decide, in that context, that we are required to shut down the scheme.

Deputy Natasha Newsome Drennan

When the flat rate changed, did the Department foresee that there would be issues within the marts or was that just overlooked? I have been speaking to guys from the marts and they basically had to go looking for information on how this was going to work. Farmers are telling us that it is the marts' fault, that they did it. One can see, therefore, why people are choosing to sell privately because then that does not matter.

Mr. Niall O'Sullivan

We do understand that the differential between the flat rate and the livestock rate may be creating an issue for marts.

Deputy Natasha Newsome Drennan

Technically, they do not own the animal. It is not their animal. The marts do not go on the blue card.

Mr. Niall O'Sullivan

The fact there are two distinct transactions with marts for the purposes of VAT law is prescribed within the EU VAT directive. Again, it is not something that we have discretion on.

An Cathaoirleach

Can the Deputy clarify that? What two transactions? If I sell-----

Deputy Natasha Newsome Drennan

I am selling to the mart and then the Cathaoirleach is buying from the mart.

An Cathaoirleach

That is not what is happening on the ground.

Deputy Natasha Newsome Drennan

No.

An Cathaoirleach

There is one transaction between the buyer and the seller.

Mr. Niall O'Sullivan

For the purposes of VAT law, there are two distinct transactions taking place.

Deputy Natasha Newsome Drennan

Let us say a mart-----

An Cathaoirleach

Just a second please. Even though one person is selling to another, there is a different interpretation of what has happened.

Mr. Niall O'Sullivan

Correct me if I am wrong, but this is prescribed in the EU VAT directive.

An Cathaoirleach

Mr. O'Sullivan needs to explain that one.

Deputy Natasha Newsome Drennan

If there were underground marts, let us say, this obviously would not happen then. The marts are just facilitators. That is all they are. They are not actually-----

Deputy Michael Fitzmaurice

They are matchmakers.

Deputy Natasha Newsome Drennan

They are matchmakers, exactly. They are not on the blue card so one can see why people are confused by it all. Mr. O'Sullivan said that he cannot comment on what is going to come up in the budget. Is there a chance that it is going to be changed in the budget?

Mr. Niall O'Sullivan

Every year, no matter what the year, there is a chance that it will go up, go down or stay the same. That is all I can say, really, on that point.

Deputy Natasha Newsome Drennan

For a long time it had been stable.

Mr. Niall O'Sullivan

I have the historical rates in front of me and yes, for most of the years since 2015 it has been above 5%. It was 4.8% in 2024 but in most years it has been over 5%

Deputy Natasha Newsome Drennan

Yes, between 5% and 5.64%.

Mr. Niall O'Sullivan

That is correct.

An Cathaoirleach

I am still stuck on this VAT interpretation. One person is selling to another but the VAT law interprets that as two transactions. It seems that if a farmer walks in with an animal and sells it and another farmer walks out with an animal, Revenue sees that as two totally different transactions. How can it have such an alternative view?

Mr. Niall O'Sullivan

I will ask my colleague to elaborate further on that.

Mr. Chad Egan

Section 22-----

An Cathaoirleach

It sounds a little like a fairytale.

Mr. Chad Egan

What happens is that for VAT purposes, there is a deemed sale between the flat-rate farmer and the auction house or mart and then from the mart to the purchaser. It provides, for legal and VAT purposes, a deemed sale. The Cathaoirleach is correct that outside of VAT, there is supply from-----

An Cathaoirleach

It does not reflect the reality of one farmer selling the animal and the other person buying it. That interpretation is not matching up with what actually happens on the ground.

Mr. Chad Egan

It is provided for in the Value-Added Tax Consolidation Act, VATCA, and the directive that these types of transactions involving marts, buyers and sellers, that there is a deemed sale between the seller farmer and the mart, and then between the mart and the purchaser farmer. That has been in place for decades.

Deputy Michael Fitzmaurice

I thank the witnesses for coming in. I want to query what Mr. Egan just said. If I sell an animal in the mart and Willie buys the animal, it is Willie's name that goes down, not the mart's. How can the mart be involved in the middle of it? The mart is basically a facilitator, that is all.

Deputy Natasha Newsome Drennan

The mart's name does not even go on-----

Deputy Michael Fitzmaurice

On the card of the animal, it says that it goes from Michael to Willie. All the mart does is take the money off Michael and provide a service to auction the animal. The mart does not own the animal at any stage. Why are the marts caught in the middle of this?

Mr. Chad Egan

The Deputy is absolutely correct in terms of documentation and the marts but for VAT purposes, in these types of sales, where someone acts for another in the selling of goods-----

Deputy Michael Fitzmaurice

Does that not need looking at, if that is the complication? It is not factual. We are talking about VAT and it might be EU law that is tying us up but we are talking about something that is not factual. If Willie buys the animal from me and Aindrias is facilitating that, how can we be making Aindrias the responsible party in the middle of it?

Senator Paul Daly

I am sorry to interrupt, but the mart would be registered for VAT so it should be charging 23% if the Department's way of looking at it is correct. A mart would be registered so it would be charging 23%.

Deputy Natasha Newsome Drennan

It would be 13.5%-----

Deputy Michael Fitzmaurice

We will let Mr. Egan answer.

Mr. Chad Egan

I appreciate that factually, economically, or from the perspective of the farmer and the mart, what the Deputy is saying is correct but from the perspective of the VAT directive and the VATCA, when these situations arise, when supplies are made in this manner, the law applies a deemed sale between the seller and the mart and the mart and the buyer. It completes the supply chain for VAT purposes.

Deputy Michael Fitzmaurice

Does the Department have to run everything by Europe in terms of changing things?

Mr. Chad Egan

These provisions are provided under the VAT directive.

Deputy Michael Fitzmaurice

Is it Europe that dictates all of that?

Mr. Niall O'Sullivan

If it is under the VAT directive, national law has to be in compliance with that and it removes discretion. We have to abide by that.

Deputy Michael Fitzmaurice

Does Mr. O'Sullivan think it is a fair system that small farmers - not big farmers who are registered for VAT - with five or ten cattle in County Clare - a mart manager from Clare was in before us - will, with the adjustment, end up with €380,000 less in their pockets this year compared to the year before if the figures work out the same, which it looks like they will, yet there is no difference or change if I decide to sell to Mr. O'Sullivan or go to the factory, which is basically promoting a certain side of the business? Does it not look like the small guy is once again being tossed over to get out of cattle, given the way it is being handled, when those are the figures? Does Mr. O'Sullivan not think that the anomaly is a problem? Without there having to be an EU law, will the Department change one of the figures to ensure that they are level and do not cause this anomaly?

Mr. Niall O'Sullivan

Where there is selling through a mart by an unregistered farmer, the mart charges a flat-rate addition. That is EU law. If it is a sale from one unregistered farmer to another, there is no VAT. That is also EU law. If it is an unregistered farmer to a meat processor, there is a livestock rate. It all depends on the channel.

Deputy Michael Fitzmaurice

I am giving the reality on the ground. I have cited County Clare, but multiply that by every county – Roscommon, Mayo, Galway, the lot – where weanling sales in particular would happen at this time of year. Clare would actually be small compared to Galway, Mayo, Roscommon or the rest of the west, which is where most of the weanlings are. Those farmers will be €380,000 down. What extra amount has the Exchequer taken in in the first eight or nine months of this adjustment? Mr. O’Sullivan talked about €60 million or something. What has it taken in so far?

Mr. Niall O'Sullivan

For every 0.1% change in the flat rate, it is approximately €10 million. When it went down from 5.1% to 4.5%, I believe that €61.5 million was the Exchequer gain, as it were.

Deputy Michael Fitzmaurice

What has been taken in in the first eight months of this year?

Mr. Niall O'Sullivan

We do not have a figure to hand for the flat rate. What we can say for the livestock rate-----

Deputy Michael Fitzmaurice

No, I am asking about the flat rate. Mr. O’Sullivan said that there would be an adjustment of €60 million. If we are two thirds of the way through the year, have we €40 million taken in? I bet the Exchequer has not got anything near that.

Mr. Niall O'Sullivan

The way VAT is worked out, it does not go down to that level of granular detail, so we do not have those figures to hand.

Deputy Michael Fitzmaurice

Okay. I was interrupted a couple of times, so the Chair might give me another minute.

On the technical system that is used, the officials have given us a formula. Will they put meat on the bones of the formula so that we can get a grasp of it? Obviously, the officials are expert at doing the maths. If possible, and rather than just being told a number and multiplying it by 100 or whatever, will they give us something that puts meat on the bones of the figures and explains it to us in detail?

If it wanted to, could the Department level the figures out on one side without having to go to the EU? Could the Department have them level so that it would not cause a problem like it is doing at the moment or is there an option - we would not really be in favour of this, as we would rather it be levelled out – whereby a farmer could align it at the end of the year and marts would not have to do the paperwork?

Mr. Niall O'Sullivan

On the last question first, the flat rate every year will land where it lands at what is deemed to be full compensation. With the livestock rate, there is some policy discretion. That rate can go as high as 4.9% and it can go down as well, so there is discretion there.

Deputy Michael Fitzmaurice

Okay.

Mr. Niall O'Sullivan

If, for example, the flat rate was below 4.8% for the coming year, there would be discretion to bring the livestock rate down to match it in that sense.

On the previous question around putting more flesh on the bones of the formula and how it is calculated, I might defer to my Revenue colleagues who undertake that exercise.

Mr. Cathal Jenkinson

At the high level, that formula annually is the unregistered farmers input VAT divided by the unregistered farmers’ agricultural output and multiplied by 100 to give a percent. That level of flat rate calculation is in accordance with the EU VAT directive. It is arising from our obligations. We have to review that rate annually. We take the annual rate and we use a rolling three-year average to come up with what that flat rate is.

Deputy Michael Fitzmaurice

I believe everything Mr. Jenkinson is saying. All I am asking is-----

An Cathaoirleach

We need to move on.

Deputy Michael Fitzmaurice

All I am asking is for the formula to be sent to us.

An Cathaoirleach

The officials can give us the detail of it. I need to get on to the next speaker, please.

Deputy Michael Fitzmaurice

Send us the whole lot – the meat and the bones. That is all I am looking for. Is that possible?

Mr. Cathal Jenkinson

We can provide the Central Statistics Office, CSO, reference data that is provided to Revenue-----

Deputy Michael Fitzmaurice

Yes, but I mean the whole lot - the meat and the bones - so that we will understand. That is all.

Mr. Cathal Jenkinson

-----to enable us to do that technical exercise.

An Cathaoirleach

I call Deputy Kenny.

Deputy Natasha Newsome Drennan

And the figures showing the difference in money terms between the first eight months of this year compared to last year and in the amount of cattle sold. Even the first six months or eight months, whichever way the witnesses can get it.

Mr. Cathal Jenkinson

Sorry, but would the Deputy mind clarifying? It is the comparison between the first eight months of this year-----

Deputy Michael Fitzmaurice

If €60 million were to be taken in in a year.

Deputy Natasha Newsome Drennan

Since January, how much extra in VAT revenue money has been taken in?

An Cathaoirleach

Deputy Kenny has been very patient. He should have had a chance before now.

Deputy Martin Kenny

That is all right. It is no bother.

An Cathaoirleach

It was my mix-up.

Deputy Martin Kenny

I thank the officials for their submissions and opening statement. In calculating the flat rate, everything that the non-registered farmer purchases is taken into account and multiplied across the entire country, and then everything they sell is taken into account and multiplied out, with one then divided into the other and multiplied by 100. I understand the formula. My question is on how the Department can ascertain what each of those numbers is. That is what we need to try to get. Obviously, it is a very technical thing to be able to trace and track and I would like to know how the Department can trace that accurately. I would imagine it would be quite difficult.

The officials said that this was governed by the EU VAT directive and they had to comply with that for the calculation. I understand that and that is fine. It is quite strict and detailed in how that happens. However, the livestock rate, which is different and seems to have stayed quite static the whole time, can fluctuate and there is more scope for that to happen. One is at 4.5% and the other is at 4.8% now. If the livestock rate was brought down, would that be an advantage or a disadvantage to the farming community or to Revenue?

Mr. Cathal Jenkinson

The Deputy asked about data from the CSO, what was involved, how we got that data and what it included. That is macroeconomic data specifically for the agricultural sector inputs and outputs attributed to unregistered farmers. We receive the data from the farming sector as a whole and Revenue provides that 85% of unregistered farmers avail of the flat-rate scheme, so we apply that 85% figure to the data provided by the CSO. As I said to Deputy Fitzmaurice, we can provide some more detailed CSO general data around that calculation.

The second question was on the livestock rate fluctuating and if there was policy discretion to lower it and what would the impact be. Is that correct?

Deputy Martin Kenny

Yes.

Mr. Cathal Jenkinson

There is policy discretion in that regard by the Minister for Finance to set that rate but it has to be set within the parameters of what is allowed under the VAT directive. The VAT directive enforces that the rate is under 5% and can be as low as 0%. If it is not in that range, it would need to be one of the other rates already provided for, namely, the standard rate of 23%, the reduced rate of 13.5% or the second reduced rate of 9%.

Deputy Martin Kenny

There is scope at the Minister's discretion to match the flat rate which is tighter and there is not the same flexibility.

Mr. Cathal Jenkinson

There is. If the objective is to match the rates, however, the flat rate would have to be below 5%.

Deputy Martin Kenny

I understand the role of Revenue is to raise taxes and to bring in taxes to the Government. That is fine but the scheme set out here with two rates of VAT is really about giving farmers an opportunity to not be out of pocket because of the VAT situation. That is my understanding. It is not for Revenue to try to raise a pile of money. That is not the ambition of this scheme.

Mr. Niall O'Sullivan

That is right. It is meant to allow farmers to be unregistered and therefore they can escape all the filing and administrative requirements. It is not meant to be a subsidy in any way because it does not allow for overcompensation. Farmers have the option of registering for VAT and claiming all their VAT inputs, as all registered VAT taxpayers do, or they can go into this scheme. This provides for administrative simplification and reduced burdens for them. We understand that approximately 85% of farmers have selected to go into this scheme so they value it.

Deputy Martin Kenny

Is it fair to say the bit of windfall Revenue has got from this because of the discrepancy is really an unintended consequence?

Mr. Niall O'Sullivan

I do not know if one could call it an unintended consequence but the general idea is if all those farmers were VAT registered, there would be a Revenue-neutral impact.

Deputy Martin Kenny

Revenue is trying to achieve the same through this but in this particular case, it has not achieved the same. It has cost farmers and rural communities up to €60 million. We are not sure exactly of the number.

Mr. Niall O'Sullivan

Farmers have been fully compensated for their VAT inputs in the year in question on an overall basis because that is how the formula is determined.

Deputy Martin Kenny

They have been compensated for their VAT input yet there is a gain to Revenue in excess of €60 million.

Mr. Niall O'Sullivan

That would imply there was a difference between their VAT inputs and outputs over the three-year calculation period. Perhaps they had lower inputs or higher outputs. In any given year, the formula is designed on an overall basis to produce full compensation for the VAT input.

Deputy Martin Kenny

In the years they were at parity, which was a long time, Revenue did not have a gain and farmers did not have a loss or a gain either. Everything was at parity. If you were to do that again by reducing the livestock rate to match the flat rate and were that to happen every year, would that have a negative impact on the farmer or on Revenue?

Mr. Niall O'Sullivan

If you take reducing the livestock rate in isolation, generally reducing a VAT rate for farmers or any taxpayer is good thing for them and it would have a negative Exchequer impact, albeit a relatively modest one.

Deputy Martin Kenny

Although you would be offering the flat rate, which would match it.

Mr. Niall O'Sullivan

It would be a policy decision in terms of matching it. The flat rate takes into account all the VAT inputs including the livestock rate so they are separate. One is a separate scheme to the tax rate.

Deputy Paul Lawless

I thank the witnesses. It is important that Revenue realises farmers are being penalised when bringing their cattle and animals to the mart as if they were to sell them privately. The marts are regulated. They are really important economically, socially and in many other aspects. This anomaly is wrong and must be addressed. We cannot have farmers disincentivised from selling their cattle and sheep, etc., at the mart.

Farmers have paid VAT on all of their inputs in relation to rearing their animals such as vets, fertiliser and fuel, etc. They go to the mart, they expect to get that VAT back and they see a discrepancy. That is causing major pain and difficulties for a lot of farmers. It is not just farmers but the marts as well.

My first question is about the interpretation. I believe Revenue's interpretation is incorrect in the assertion at the moment. The mart plays a similar function to the likes of DoneDeal but DoneDeal does not collect VAT. Will the witnesses explain that? What is the material difference between DoneDeal and a mart? If I sell an animal at a mart, the mart is never registered on the book of that animal. It is direct between one farmer and another and the mart plays the role of a facilitator similar to how DoneDeal operates.

Mr. Chad Egan

I cannot speak to the tax implications of a third-party taxpayer subject to confidentiality provisions in the tax code but I can explain the difference generally. Marts are subject to the rules that generally apply to auctioneers. There is a deeming provision in EU and Irish VAT law that where someone acts for another selling their goods, they treat the sale by the seller, the farmer, to the mart as a deemed sale even though, as the Deputy outlined, the sale is between the seller and the purchaser. I believe sites that facilitate sales do not act as auctioneers. They might be list sales but I do not think they are involved in actually selling the goods. There is a critical difference. The auctioneer is directly involved.

Deputy Paul Lawless

There is very little difference in reality. The mart and an online platform like DoneDeal operate a facilitation service, a matchmaking service - a way for the farmer, the seller, to engage with the purchaser. That needs to be looked at. I propose that Revenue review that. It seems to be based on an incorrect interpretation.

Deputy Martin Kenny

Is it because there is an auctioning licence involved? The auctioneering licence facilitates the sale. Is that the reason? I am only assuming that is what is different. In a DoneDeal situation, it is only an advertisement.

Mr. Chad Egan

It is not because they have a licence, it is because they act as an auctioneer. If you advertise sales, for VAT purposes, the transactions are in no way similar.

Deputy Martin Kenny

That is my point. It is because it is an auctioneer.

Mr. Chad Egan

That is exactly it.

Deputy Paul Lawless

The rates need to be aligned, as Senator Paul Daly said. On the farmer flat rate, I understand there are EU rules that could preclude raising that but it is within the gift of the Government to reduce the VAT rate on livestock. Are there any rules, EU or otherwise, that would prevent the Irish Government in this coming budget from aligning the two tax rates, in other words, reducing the livestock VAT rate?

Mr. Niall O'Sullivan

There are no rules that would prevent them being aligned, as they were for many years a long time ago, except that the livestock rate must stay below 5%. The flat rate lands where it lands. If it goes to 5% or higher, it is not possible to align them because the super-reduced rate must be under 5%. If the flat rate was under 5%, there would be policy discretion to align the two.

Deputy Paul Lawless

That would be wise. I propose that the committee write to the Minister and recommend that we align the two, especially in years when we can do so at under 5%. It would spare marts, farmers and the entire sector an enormous headache.

Deputy Joe Cooney

I thank the officials for coming in and for their opening statements. If the rate were to remain at 5.1%, what would the estimated Exchequer cost have been in 2026? What assessment did the Government make of that cost against the potential impact on farmers' income?

Mr. Niall O'Sullivan

The estimated cost of reducing the flat rate from 5.1% to 4.5% was €61.5 million. As for the assessment of the impact, this is not something we have policy discretion over. The rate comes from a predetermined formula and we receive the number each year from Revenue. If there is a change from one year to another, that new rate is applied. That is basically how it is determined.

Deputy Joe Cooney

With the evidence presented to the committee today showing that farmers are carrying a genuine financial loss as a result of the reduction, will the Department commit to looking again at the 4.5% rate rather than leaving farmers to absorb the cost?

Mr. Niall O'Sullivan

This exercise is undertaken every year and at the end of the exercise, we are presented, if there is a change, with a new number, which can be higher or lower than in the current year. In some cases it can be the same. The number is essentially deemed to be full compensation for the VAT inputs of farmers within the scheme.

Deputy Joe Cooney

Very good. The flat-rate addition, FRA, is based on agricultural input and output data. What happens when a three-year average hides a sharp increase in particular costs faced by livestock farmers? Can the data the decisions are based on respond quickly enough to current conditions?

Mr. Cathal Jenkinson

The three-year rolling average smooths out those peaks and troughs - the fluctuations in the rates - such that there are not large variations in the rate of the farmers' flat rate addition from one year to the next.

Deputy Joe Cooney

Then it would not have a major bearing on a farmer.

Mr. Cathal Jenkinson

What I mean is the individual rate calculated in a given year could mirror inflationary pressures, increases in agricultural output or increases in the agricultural inputs farmers incur, but those fluctuations are smoothed out by the averaging of that annual figure over the three-year period.

Deputy Joe Cooney

Very good. I thank the officials.

Deputy William Aird

I welcome the officials. It is really marts we are talking about. We will get on to talking about grain and milk as well today. The concept of the co-ops setting up marts was that farmers could trade their cattle. It came from the towns and villages that had fairs. I think Killorglin is the only fair in the country now. Maybe there are one or two more. Little did farmers think, when they were setting up these co-ops, that they would be penalised because there would be an auctioneer in between. That is what we are talking about. They are being penalised because there is an auctioneer.

My questions will have "Yes" or "No" answers. The drop from 5.1% in 2025 to the 2026 rate of 4.5% was the biggest reduction in the FRA in many years. The officials have told us how that was calculated. I might not agree with them but I will accept it for the moment. I understand every 0.1% change in the FRA is equivalent to €10 million in the agriculture sector. Is that correct? That will have a "Yes" or "No" answer. The officials will know that as they are collecting it.

Mr. Niall O'Sullivan

If I can just take last year, the decline from 5.1% to 4.5% was just over €60 million and that would mean for every 0.1% change in the flat rate, it was a ball-park figure of €10 million.

Deputy William Aird

It was €10 million and there was a 0.6% change. How much money did the Department bring in on that?

Mr. Niall O'Sullivan

The estimated gain for the Exchequer at that time was, I think, €61.5 million.

Deputy William Aird

Yes, and that is why we are here. The Department took €61.5 million out of farmers' pockets. The officials should not forget that. It was the same with milk and grain, was it not?

Mr. Niall O'Sullivan

Yes.

Deputy William Aird

Yes.

Mr. Niall O'Sullivan

It covers all inputs.

Mr. Cathal Jenkinson

It covers agricultural produce and agriculture-----

Deputy William Aird

Members, as public representatives, know from the meetings they have had with grain-growers that this is probably one of the worst years there have been. The same can be said about milk, with the warm year this year, the cost of inputs and all that. In that situation we are taking money out of farmers' pockets instead of trying to keep them in business. We are talking about the people who are not VAT-registered and the majority of Irish farmers are not VAT-registered. The people who are VAT-registered get the VAT back. That is a different situation. That is important.

With the reduction of the flat rate in 2026, many farmers are questioning the value of remaining in the flat rate scheme at all, particularly with the high cost of machinery. Should they be registered? We do not often have people from Revenue and the Department of Finance in the committee together. What is their opinion?

Mr. Niall O'Sullivan

If I can clarify a previous comment, I said that €61.5 million was recorded as a gain for budgetary arithmetic purposes. However, the counterfactual would be that for the farmer, if they were VAT-registered, there would be no gain. It is revenue-neutral by design. I wanted to clarify that point. The gain is for budgetary arithmetic purposes only. It is a notional gain in that sense.

Deputy William Aird

Should the farmers who are not VAT-registered become registered?

Mr. Niall O'Sullivan

All farmers have that option. This is done on an overall basis, so if a farmer feels there is an advantage to becoming registered due to their being able to claim all the VAT inputs, which would give them more than the flat rate-----

Deputy William Aird

What is Mr. O'Sullivan's opinion? I am asking him.

Mr. Niall O'Sullivan

I do not have-----

Deputy William Aird

He does not have an opinion.

Mr. Niall O'Sullivan

I do not have the information. Individual farmers are able to decide. They have the option.

Deputy William Aird

Representatives of the Irish Co-operative Organisation Society, ICOS, were in earlier, as were representatives of two marts. Sellers through marts are suffering a financial loss due to the FRA being at 4.5% and livestock rates being at 4.8%. There is a huge problem there for the marts because the Department decided to change the rate. It was such a big change that it impacted on farmers, who are paying extra money.

Mr. Niall O'Sullivan

The rate is set by a predetermined formula. Sometimes, it goes up; last year, it went down.

Deputy William Aird

That is the Department's predetermined formula. The Minister will be making an announcement in a fortnight's time. I am not asking Mr. O'Sullivan anything about what it will be, but is it the case that whatever he and his colleagues present to the Minister, that will be it? How do they calculate the rate? Will it stay the same?

Mr. Niall O'Sullivan

We are subject to budget secrecy on that.

Deputy William Aird

Budget secrecy - that is very funny. I will put my neck on the line and say Mr. O'Sullivan is not going to get that. No Minister can stand over what happened last year. We will see what happens. I do not believe everything I am hearing today. As far as I am concerned, farmers are furious that they are out of pocket. The marts are losing because when the docket comes out to a farmer, that farmer does not look to see who got what. As far as the farmer is concerned, the mart took the money from him and paid back the Revenue Commissioners. Senator Brady knows, because he is at many marts every week, that people look at the docket and think, "Jesus, it cost €25 to sell that bullock". That is the money people are looking at, and it is what is causing haemorrhaging at the marts. It is very unfair.

It is impossible to explain to non-registered farmers selling their few cattle why they are losing €280 on every €1,000 worth of animal. How do people manage that? It is very difficult for them. They are taking less for their grain this year from the VAT point of view. They are getting less money in a year. That has been very difficult for them.

I am waiting eagerly to see what is going to be done in the budget. I would like to have the witnesses back here again after that. If I am wrong, that is fair enough, but if I am right and this is reversed, I would love to have them back in to see their calculations and how it happened. I believe in my heart that this is wrong. I would say the witnesses do too. We will see what the Minister for Finance says. That will be the proof.

Deputy Natasha Newsome Drennan

I wonder whether the higher prices for cattle will determine the VAT rate. I do not know whether that has anything to do with it.

Deputy William Aird

I wonder whether the good prices the year before have anything to do with it.

An Cathaoirleach

We must move on. The next speaker is Senator Daly.

Deputy William Aird

I just want to say that there is no such thing as dear cattle, as was stated here by another member.

Deputy Natasha Newsome Drennan

Perhaps I should have said more expensive.

An Cathaoirleach

Senator Daly has the floor.

Senator Paul Daly

The witnesses will correct me if I am wrong, but I think there has been a breakdown in both communications and explanations here today. Flat-rate VAT is the farmer's friend. I am a flat-rate farmer who is not registered. I do not want to be doing returns. As we have been discussing, I do not want to be a collector for Revenue at the marts. The flat rate of 4.5% is meant to compensate me for the equivalent in VAT I have paid on my inputs. We have heard about the gain of €60 million. Far be it from me to be on the side of either the Department of Finance or Revenue in this argument, but the facts are that if €60 million is gained from the reduction from 5.1% to 4.5%, and the microeconomic information from the CSO said €60 million would be lost from the VAT farmers were paying, it means it is net neutral. That has not been explained here today. There is no loss to the farmer here if the calculation formula is working. Am I right about that?

Mr. Niall O'Sullivan

Correct. It is full compensation.

Senator Paul Daly

The only issue we raised here was the anomaly that arose whereby when the rate came down to 4.5%, it went below the 4.8% livestock rate and that created the issue at the marts. There is no €60 million loss to farmers here at all. People need to understand flat-rate VAT.

The anomaly is the difference between the 4.5% rate and the 4.8% at the mart. That was the issue that was raised. The question is whether those rates can be equalised. As a beef farmer, my question is why they are different anyway. My only output is livestock. My inputs are fertiliser, diesel, VAT on diesel and you-name-it VAT. My only income is livestock. Why am I not on the flat rate of 4.5%? Why am I on 4.8%? I do not know why there was ever a difference.

The rates need to be equalised but in fairness to everybody involved here, this claim about Revenue gaining €60 million by the reduction in the flat rate is wrong. That is an equalisation. Flat-rate VAT is the farmer's friend, and it is important to say that.

Deputy Natasha Newsome Drennan

If that is the case, where is the extra money going?

Senator Paul Daly

We are paying less VAT because there are reductions in fertiliser. As a result of the green issues or whatever, we are paying out less VAT. That is if the calculation is working.

Deputy Natasha Newsome Drennan

Is Senator Daly saying we are paying more on our diesel?

Deputy William Aird

Is he saying nitrogen is cheaper this year than last year?

An Cathaoirleach

Senator Daly has the floor and should address his questions to the witnesses.

Senator Paul Daly

I am talking about the VAT paid out by farmers. If that equation is working right, the farmer is VAT neutral. Flat-rate VAT is VAT neutral. It means farmers are paying less VAT if they are collecting it.

(Interruptions).

An Cathaoirleach

Senator Daly has the floor and his questions are to be addressed to the witnesses.

Senator Paul Daly

Am I right or am I wrong?

Mr. Niall O'Sullivan

As I said earlier, this is designed as an administrative simplification. It is meant to be revenue neutral. It is meant to fully compensate farmers who otherwise would be registered and claiming under inputs. It is meant to be revenue neutral in that respect.

Senator Paul Daly

It is very complicated and hard to understand, but it is revenue neutral.

Deputy Natasha Newsome Drennan

It is meant to be, but, right now, it is not.

Senator Paul Daly

No, it is revenue neutral if the calculation is working right. If the sum is working right, it is still revenue neutral. That is why it changes; it is based on the sum.

Deputy Natasha Newsome Drennan

It is an increase.

An Cathaoirleach

One speaker at a time, please.

Senator Paul Daly

I want to know about the livestock rate. Why is there a difference and can the rates be equalised?

(Interruptions).

Senator Paul Daly

It is neutral.

An Cathaoirleach

One speaker at a time. Mr. O'Sullivan has the floor to respond to Senator Daly.

Mr. Niall O'Sullivan

The livestock rate has been 4.8% all the way along since January 2005. It has not been changed since then. As I said earlier, there is policy discretion to change the livestock rate within certain parameters.

Senator Paul Daly

It stays below 5%.

Mr. Niall O'Sullivan

Below 5%, indeed.

Senator Paul Daly

Why were the rates allowed to drift apart and decouple?

Mr. Niall O'Sullivan

I can see from the information on historical rates that they were decoupled in 2007. Up until then, they were at parity. At that point, the flat rate was higher. It was 5.2% that year. I presume that at that point, the decision was made to decouple them. They have been decoupled ever since. There may have been one or two years where they happened to be the same but, in essence, they were decoupled from 2007.

Senator Paul Daly

I know Mr. O'Sullivan is bound by budget secrecy but does he think it would be a good idea for the two rates to be coupled once the flat rate is below 5%? Would there be a cost on the Exchequer to couple them? Let us say there is no change to the flat rate this year and we wanted to bring the 4.8% livestock rate down to the 4.5% rate to couple them, is there a cost to the Exchequer to do that?

Mr. Niall O'Sullivan

There is a modest cost to reducing the livestock rate. I understand that for every 0.3% reduction in the livestock rate, there is an estimated cost of €2 million to the Exchequer.

Senator Paul Daly

That means it would cost about €12 million to decouple the rates.

Mr. Niall O'Sullivan

It is an Exchequer cost. A lower rate means a cost to the Exchequer.

Deputy William Aird

No, it does not. It could mean an increase.

(Interruptions).

Senator Paul Daly

Would it cost about €8 million in a given year to reduce it from 5% to 4.8%?

Mr. Niall O'Sullivan

If we reduce it from 4.8% to 4.5%, for example, that cost would be around €2 million.

Senator Paul Daly

All it would cost to equalise the rates, as they stand at the moment, is €2 million. If we wanted to decouple the rates as they are today, the cost would be only €2 million. Is that correct?

Mr. Niall O'Sullivan

That would be the estimate.

Senator Paul Daly

It is a no-brainer.

Deputy Natasha Newsome Drennan

Is that the gain then? If Mr. O'Sullivan is saying it will cost €2 million, then that is the money the farmers are paying in now.

Mr. Niall O'Sullivan

No. Any reduction in the livestock rate is a cost to the Exchequer. As I said, at 0.3%, that cost is estimated at around €2 million. That is a cost to the Exchequer.

Senator Paul Daly

That is on the livestock rate, not the flat rate.

Mr. Niall O'Sullivan

Yes, that is on the livestock rate.

Deputy Natasha Newsome Drennan

Is that to take it to 4.8%?

Mr. Niall O'Sullivan

It has been at 4.8% since 2007.

Deputy William Aird

What about the other sectors then, including grain?

Mr. Niall O'Sullivan

Essentially, when the flat rate is determined by the formula, that incorporates all the VAT inputs, including the livestock rate. I just want to clarify that.

Senator Paraic Brady

At what stage? Mr. O’Sullivan referred to the formula. To change the formula, he said it would be put from 4.5% to 4.8%. Is that correct?

Mr. Niall O'Sullivan

No. The flat rate formula is essentially determined within the EU VAT directive. We are conflating the flat rate with the livestock rate. The livestock rate is 4.8%. There is discretion to reduce that. With the flat rate, whatever the formula and whatever number it generates at the end of every year, that is the number that goes through.

Senator Paraic Brady

Could that go over 5%? That is what I am asking.

Mr. Niall O'Sullivan

If the flat rate goes over 5%, there will be a differential between the flat rate and the livestock rate, because the parameters for the livestock rate mean it has to stay below 5%.

Senator Paraic Brady

That is what happened in the past.

Mr. Niall O'Sullivan

It happened in the past, for quite a number of years.

Senator Paraic Brady

It has not happened since 2007. Is that what Mr. O’Sullivan said?

Mr. Niall O'Sullivan

The first time they were decoupled was in 2007, when the flat rate was higher than the livestock rate. Until that point, they were at the same rate.

Senator Paraic Brady

Okay. It would be good if we could get them back to the same rate at this time. It would stop a lot of the confusion, especially for the marts, if everything was on par, at the one rate.

Deputy Danny Healy-Rae

I am glad that the witnesses are here. A discrepancy has arisen in the last while. The marts came to this committee, and Martin McNamara clearly told us that there was a cost to the farmer. Now, a lot of people are trying to say there is no cost to the farmer.

Senator Paul Daly

There is a cost to the livestock rate.

Deputy Danny Healy-Rae

Is it costing the farmers money?

Senator Paul Daly

The livestock rate is, as it stands.

Deputy Danny Healy-Rae

All right. This is based on the claim that there are two transactions in the mart when the man takes the cattle to the mart. This is why the farmers are liable for this. In fact, there is only one transaction. A farmer takes in his cattle. The mart is the seller. It never put the cattle into its herd. The mart does not have a herd, or I never heard that it had. Maybe a few times, I went home after selling cattle, and the next thing, the buyer threw them up. However, that is all I was told – that the buyer threw them up. They would be there inside a pen. I would then be told to come for them and take them away. The mart never kept them. They are not the mart's cattle.

I cannot understand why the Department is basing its theory on this. It means that it has to go after these fellows and take money out of their pockets, simply because it is saying there are two transactions. Point out to me where the two transactions are. A farmer goes into the mart and the auctioneer sells them. There is nothing more to do. The mart never puts them into its herd. There is no such thing as two transactions. The auctioneer is on site. It is the same as someone trying to tell me that a house or a farm is for sale, and the auctioneer stands up to sell it, and the next thing, maybe after a few hours or a few days, the buyer throws up the property. Is the auctioneer stuck with it? There is no such thing. There is only one transaction. I do not know how the Department makes out that there are two transactions. The auctioneer is only there for a purpose. The mart is only providing a service to pen the cattle, walk them into the ring and sell them. They are not put into the mart’s name. I refuse to agree that there are two transactions in the first place. Answer that.

Mr. Niall O'Sullivan

There is one economic transaction. There is a seller and a buyer. For the purposes of VAT law, which stems from the EU VAT directive, there are two transactions. That is what is specified in the directive.

Deputy Danny Healy-Rae

I am afraid Mr. O’Sullivan was never at a mart because that is not what happens. You could have all the degrees in the world, but I know what happens in a mart. To have two transactions would mean the seller goes in and gives the animals to the mart, and he would register the animals, the mart would register the animals in its herd, if it had such a thing, and then it would sell them. There would then be two transactions, but that is not what happens. The auctioneer is inside, up on the stand. He sells the animal, and if there is something wrong, the animal goes back to the seller. The mart is never stuck with the animal.

An Cathaoirleach

Thank you, Deputy.

Deputy Danny Healy-Rae

That is my point. The witnesses are wrong from the start.

An Cathaoirleach

Thank you, Deputy. We need to move towards getting a decision on where we stand on it. Can the two rates be linked or bound together, as they seem to have been in the past when they moved along and were matched together each year? Would there be a consequence for farmers and the Exchequer if the two bands - the flat rate and the livestock rate - were bound together?

Mr. Niall O'Sullivan

They can be matched, as I said, subject to the parameters. Essentially, the livestock rate must be beneath 5%. If the flat rate happened to land beneath 5%, there would be policy discretion to match them. Any reduction in the livestock rate would have an Exchequer cost, and I have explained that for every 0.3% reduction, it is approximately €2 million.

An Cathaoirleach

Another group is coming into the meeting room, so we need to get to a decision.

Deputy William Aird

I have a point to make.

An Cathaoirleach

I want to let the witnesses finish up their business, and we can then get on with-----

Deputy William Aird

From 5.1% to 4.5%-----

An Cathaoirleach

No, Deputy, this is the way we are going to do it.

Deputy William Aird

It was said here today that farmers did not lose money.

An Cathaoirleach

Deputy Aird, we are going to do it this way.

Deputy William Aird

Can I just ask this, Chairman? You gave four minutes extra.

An Cathaoirleach

Please, Deputy. I will suspend the meeting if you persist.

Deputy William Aird

You should be fair to everybody.

An Cathaoirleach

I need to conclude with the witnesses. We are going to move on and do our own business. We need to suspend the meeting.

Cuireadh an suí ar fionraí ar 5.58 p.m. agus cuireadh tús leis arís ar 6.03 p.m.

Sitting suspended at 5.58 p.m. and resumed at 6.03 p.m.

An Cathaoirleach

As there are no further matters for discussion, today's meeting stands adjourned.

Cuireadh an comhchoiste ar athló ar 6.03 p.m. go dtí 3.30 p.m., Dé Céadaoin, an 30 Meán Fómhair 2026.

The joint committee adjourned at 6.03 p.m. until 3.30 p.m. on Wednesday, 30 September 2026.

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