Food and clothes tax in sight to claw back cash

FOOD and clothes costs are set to increase with fears the Government could also introduce a tax on children’s clothes.

Smokers and drinkers can expect some hikes on the “old reliables” in the upcoming budget with the Government saying a number of changes will be made to excise duties and licences in 2011 to the value of €110 million.

As part of the National Recovery Plan, the standard VAT rate will increase to 22% in 2013 and to 23% in 2014. These changes will bring in €620 million.

The Government also announced there will be a review of items which are currently zero-rated for VAT purposes and this could result in the unpopular move of VAT being applied to items such as food and children’s clothes.

VAT rates have increased across Europe in response to the current crisis with some countries having rates of 19% or more.

Tax partner with Ernst and Young, Jarlath O’Keefe said it is surprising the VAT rate is not being increased with effect from 2011 but added an increase, however small, in the current climate may have reduced the level of consumer spending.

Employers group IBEC, however, said increasing the VAT rate has the potential to damage enterprise and employment.

Cigarette firm, PJ Carroll hit out at the prospect of an increase in the price of cigarettes in the forthcoming budget.

Corporate affairs manager with PJ Carroll, Chloe Campen said excise levels on tobacco products in Ireland are the highest in the EU and any increase in this area will simply drive more customers into the black market.

“Criminals are supplying Ireland’s smokers with smuggled and counterfeit cigarettes and many people are taking trips aboard to purchase cigarettes,” she said.

In its four-year plan the Government said the level of indirect tax in Ireland is higher than average, with excise duties being especially high.

“Notwithstanding this, it is accepted that increases in indirect tax are less economically damaging than direct tax increases as they affect consumption rather than production,” they said.

On the VAT rate, Chambers Ireland deputy chief executive Seán Murphy said it is disappointing the rate will increase by 2% by 2014 but added that it must be borne in mind that the British rate of tax is increasing to 20% from January 2011, which should reduce the pull-factors for Irish consumers going north of the border.