‘Likely’ authorities will have to charge VAT

HARD pressed businesses and consumers are likely to be hit by price increases of up to 21.5% for refuse disposal, car parking and toll roads provided by local authorities.

This follows a ruling from the European Court of Justice that could also open the way to local authorities having to pay VAT on property and leisure centres.

It could also leave the State open to be sued by private companies that have been paying VAT on these services for years.

Under Irish legislation local authorities have been exempt from charging VAT on their services up to now but the court has found that this is illegal because private operators must pay the tax.

The Department of Justice is still examining the ruling but said it is likely that local authorities will have to charge VAT for services they provide in competition with private companies.

The main services concerned are waste, including collection and landfill, where local authorities will have to charge the reduced rate of 13.5%, and off-street parking and tolls, where they will have to charge the full rate of 21.5%.

In many parts of the country these services are provided by private operators so consumers are already paying the VAT and will not be affected by the ruling, the department said.

Niall Campbell, head of global indirect tax services at KPMG, said the court judgment indicated any state and local authority services in competition with the private sector had to be VATable. “The Department of Finance will have to work out which services will have to be included. But there is still a lot of play for here in deciding who is going to be hit. It could include property where, for instance, the OPW is leasing offices,” he said.

Pascal Brennan, a partner with Deloitte, said the ruling seeks to ensure that when the public and private sectors offer the same services, they do so on an equal footing.

They could in theory recoup their VAT for the last four years, although the Department of Finance will be anxious to avoid this happening. The department said it will change the law in the 2010 Finance Bill but the increase to the consumer should be less than the full VAT rate, since local authorities will be able to claim back the tax for the first time.

The case came about as a result of complaints from private parking companies that they were having to compete unfairly with similar facilities provided by local authorities.