European Commission lines up lower VAT rates

VAT rates could be lowered on a whole range of services and goods from hairdressing to construction to restaurants under proposals from the European Commission.

If adopted by the Government and the rest of the EU member states, it could result in savings on a whole range of consumer goods and services.

However, with less money expected into the State’s coffers this year because of the economic downturn, the Government may not be interested in reducing the tax take by lowering VAT rates.

Ireland has one of the highest standard VAT rates at 21%, which also applies to building materials. A lower rate of 13.5% applies to building services and certain fuels. It is the only EU country where children’s clothes are exempt from the tax.

Under proposals outlined by Taxation Commissioner Laszlo Kovacs, countries would be able to reduce the tax rate to 5%, with Ireland allowed to permanently keep its zero rate on children’s clothing.

Mr Kovacs said it was important that countries apply similar VAT rates to similar products and services to prevent distorting competition between member states.

Restaurants, which have for a long time demanded lower VAT rates, could have their wish granted under the new proposals and see it extended to catering services. France has had a reduced rate for years and have been battling to retain it.

At present some locally provided labour intensive services have reduced VAT rates and this could now be extended to include gardening, landscaping, general cleaning services, laundering and ironing.

Other services for which people are unlikely to travel, such as hairdressing, beauticians and personal care could have a cut in their VAT rate.

Mr Kovacs said he will present proposals in the autumn on reducing rates for goods and services designed to encourage energy efficiency and reduce greenhouse gasses.

All member states will need to agree unanimously on Mr Kovacs proposals.