Dáil Éireann Debate, Tuesday - 8 October 2024
124. Deputy Jim O'Callaghan asked the Minister for Finance the estimated first- and full-year cost of applying a 5% to 15% VAT rate at 1% increments under the supply and construction of new social and affordable housing, as part of a social policy as per the EU VAT directive, in tabular form. [40265/24]
View answerWhile most Member states apply the standard rate to construction services, Ireland historically has applied a 13.5% reduced rate of VAT to all construction services (residential and non –residential) under a derogation from the EU VAT Directive. This derogation however has significant restrictions including that the rate cannot be reduced below 12%.
Since April 2022, under Annex III of the VAT Directive, it is now possible for Ireland to apply a reduced rate of VAT e.g. a 9% rate to the supply and construction of housing, as part of a social policy and to the repair and renovation of residential housing (non-residential construction is not within scope of this reduced rate).
I am advised by Revenue that traders are not required to identify the VAT yield generated from the supply of specific goods or services on their periodic VAT returns. Therefore, Revenue does not have the necessary data using information provided on tax returns to provide an accurate estimate of the VAT yield arising from social and affordable housing construction.
However, using third-party sources, for each 1% change to the VAT rate the full year cost is estimated at €55m. First year estimates are not available for this proposal but in general, because VAT is collected in the VAT period following the payment, the first year cost will be five sixths of the total year cost. As an example, the full year cost of moving the VAT rate for social housing from the 13.5% VAT rate to the 9% VAT rate is estimated to be €247.5m and the first year cost is estimated to be €206.25m.
It should be noted that the VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law must comply. The Directive only allows Member States to apply two reduced rates of VAT between 5% and 15%. Ireland currently applies a 13.5% reduced VAT rate and 9% reduced VAT rate. The estimate provided does not reflect the cost of moving other items currently applying the 13.5% and 9% VAT rate to other rates.
