14 Oct 2020 | 11.24 am
Budget 2021: Indirect Taxes
KPMG's David Duffy and Glenn Reynolds explain who exactly benefits from reduced 9% VAT rate
14 Oct 2020 | 11.24 am
KPMG partners David Duffy (pictured) and Glenn Reynolds detail the changes to indirect taxes, including the VAT reduction for certain trading sectors
As anticipated, the minister announced that the VAT rate applicable to certain goods and services, mainly in the tourism and hospitality sectors, will decrease from 13.5% to 9% with effect from 1 November 2020 to 31 December 2021.
The goods and services to which the 9% VAT rate will apply closely resemble those which were previously subject to 9% VAT in the period from 1 July 2011 to 31 December 2018.
This includes supplies of certain food and beverages in the restaurant, take-away and catering sectors; admissions to certain attractions including cinemas, museums and exhibitions; hotel, guesthouse and other holiday or short-term accommodation; hairdressing services; and supplies of certain printed matter.
The 9% VAT rate will continue to apply to the sale of printed newspapers, digital supplies of e-books and e-publications, and the provision of sporting facilities by profit-making bodies. Supplies of other goods and services which are subject to the 13.5% VAT rate are not affected by this change.
This targeted VAT rate reduction is a welcome development for the tourism and hospitality sectors which have been heavily impacted by Covid-19. However, suppliers impacted by this change will need to consider the impact on their pricing and ensure that their accounting systems and procedures are updated to apply the revised rate from 1 November 2020.
This change will overlap with the standard VAT rate reduction from 23% to 21% announced as part of the July Stimulus Plan and already effective from 1 September 2020 to 28 February 2021.
Farmer’s Flat-Rate Addition
The flat-rate addition payable to farmers who are not VAT registered will increase from 5.4% to 5.6% with effect from 1 January 2021. The flat-rate scheme compensates non-VAT registered farmers for irrecoverable VAT on their purchases.
In line with the Programme for Government, the minister announced an increase of €7.50 in the rate of carbon tax from €26 to €33.50 per tonne of CO2 emitted. This equates to an increase of approximately 2 – 2.5 cent per litre in the price of fuel at the pump. This increase will apply to auto fuels with effect from midnight 13 October 2020, and to other fuels will take effect from 1 May 2021.
The minister also announced increases in carbon tax by €7.50 per year up to 2029 and by €6.50 in 2030, to achieve a target by 2030 of €100 per tonne of CO2 emitted.
Vehicle Registration Tax (VRT)
From 1 January 2021, a new table for calculating VRT on motor vehicles will apply based on a CO2 emissions test for passenger cars, known as Worldwide Harmonised Light Vehicle Test Procedure (WLTP). The existing 11 band table for VRT is to be replaced with a 20 band table with a revised rates structure. The new VRT rates will range from 7% to 37% compared to a current range from 14% to 36%.
A formula will be used to calculate VRT under the new regime for used vehicles that were subject to the current New Europe Driving Cycle (NEDC) emissions test.
The existing VRT reliefs for plug-in hybrid electric vehicles and hybrid vehicles will expire on 31 December 2020. These vehicles will however qualify for lower VRT rates under the new WLTP system. The existing relief for Battery Electric Vehicles will also be tapered.
The Nitrogen Oxide (NOx) surcharge bands introduced in Budget 2020 will also be adjusted so that higher NOx emitting vehicles are subject to higher rates of VRT.
A new motor tax rates table will apply to cars that are first registered in the State from 1 January 2021 with a WLTP CO2 value. Cars first registered in the State up to the end of 2020, or from January 2021 which only have the old NEDC figure, will be subject to motor tax in line with the current NEDC motor tax table, with minor adjustments.
Pre-2008 registered cars, which do not have CO2 emissions information, will continue to be taxed according to their engine size based on existing rates. There will therefore be three motor tax tables in operation from 1 January 2021.
Tobacco Products Tax
The excise duty on a packet of 20 cigarettes will increase by 50 cent (including VAT), with a pro-rata increase on other tobacco products. This measure will take effect from midnight on 13 October 2020 and is estimated to generate additional revenue of €57 million annually.
There were no changes in respect of customs duty announced in the Budget.