VAT rates and cross-border trade
The Taoiseach rejects changing Ireland’s VAT rate, saying sterling movements and UK excise increases partly offset Britain’s VAT reduction; Gilmore presses him on whether the rate will change.
Regarding VAT, the big issue in terms of trade flows is the exchange rate between sterling and the euro.
Comment on this
While the UK's standard VAT rate will have an impact on the price differentials between North and South in respect of some goods, it should be pointed out that the UK has increased excise duties on alcohol, cigarettes, petrol and diesel to offset the 2.5% reduction in VAT on those items.
Approximately half of the value of goods and services purchased in the State are not subject to the standard rate of VAT and, therefore, are unaffected by the change therein. For example, all Government services, local authorities, hospitals, schools, the majority of foodstuffs, oral medicines, books, children's clothes and so on are subject to a zero VAT rate. Housing, electricity, gas, domestic fuels, restaurant services and labour intensive services, such as hairdressing and shoe repair, have the reduced VAT rate of 13.5% applied to them.
As part of a fiscal stimulus package, the UK Government decided to reduce its standard VAT rate from 17.5% to 15% on a temporary basis with effect from 1 December 2008 to 31 December 2009. The exchange rate is the determining factor rather than the VAT rate.
