There was relatively little in the budget announcement affecting indirect taxes overall.
Besides a small adjustment to the cash receipts basis threshold in VAT, which only affects businesses with an annual turnover of or below €1.25m, there were no new announcements affecting VAT in the Ministers speech. The marginal increase in this threshold, while welcome, is unlikely to be of major benefit to the majority of SME’s whose turnover will exceed this threshold and so will not qualify for the relief at all.
The Minister confirmed, in his speech, that the 9% rate for the tourist sector would continue to apply in 2013 but this had already been announced when the 9% VAT rate was originally introduced.
A VAT measure which was not announced by the Minister in his speech was a reduction in the flat-rate addition paid to farmers. The flat-rate scheme is designed to compensate unregistered farmers for VAT incurred on their farming costs and the reduction is difficult to fathom in a context where VAT costs have not decreased for these farmers.
The “old reliables” may not have lived up to their name in recent years, escaping increases in excise duties for a number of years, but on this occasion they have appeared again like old friends in a crisis. While fuels escaped excise increases there were increases across the board for the rest with a notable and whopping €1 increase in excise being applied to a bottle of wine.
On the positive side the announcement of an excise duty rebate scheme for hauliers will be welcomed by all businesses if its benefits feed into the cost of haulage in the wider economy.
The rates of both VRT and motor tax across all categories will increase with effect from
1st January 2013. Obviously this will not be good news for the motor industry, or indeed, private motorists.
While it can be expected that the motor tax increases will benefit the exchequer, the case for increasing VRT in the current environment for new cars has to be questionable. It may well be the case that the increases in VRT result in a diminishing tax return for the exchequer as a result of further contraction in new car sales.
Carbon tax is to be extended to solid fuels over the next two years. This will bring the tax treatment of solid fuels into line with the tax treatment of other fuels. The increases for solid fuel are significant. However, on the positive side they will not impact until after this winter.
Overall there were no surprises on the indirect tax front. The combination of the reduction in the 9% VAT rate for tourism related activity and the increase in the standard rate of VAT to 23% last year appears to have worked for the government, with VAT revenues expected to increase by 6% this year over last.
It remains to be seen if the increase in motor taxes this year will produce a similar positive result for the government. We suspect that it may not. While the increase in car tax will raise additional revenue an increase in VRT for a struggling sector may well result in a diminishing tax return for the government on new vehicles.
The increases in excise on the old reliables cannot be seriously challenged and equalising carbon taxes on liquid and solid fuels was not unexpected. Overall there were few changes and, apart from the increase in VRT, few complaints to be made in relation to these taxes, given the fiscal constraints on the government.