Holidays are about to become a taxing matter for EU ministers
In the EU it's certainly a red rag issue and comes in various guises from the tax on children's clothing and footwear to the latest debate VAT on travel agents.
Common sense seems to evaporate when VAT comes into the picture.
Just consider VAT on children's shoes. It caused one government to resign when it suggested imposing the tax on them, and consequently turns Irish government ministers into rabid protestors when it comes up at EU level.
But this is despite studies showing that neither children nor their hard-pressed parents benefit from the lack of VAT on shoes. The 21% they should benefit from goes missing eaten up by the manufacturers and/or the retailers.
The next appearance of VAT will be in relation to package tours and travel agents. Get ready for a deluge of information and disinformation on this one. In the UK, travel agents claim it will increase holiday prices and wipe out 5,000 jobs. The Irish Travel Agents Association, which has been operating VAT-free up to now, says it will add about 3% to the cost of a package holiday.
The issue will be discussed by finance ministers in November in Brussels but nobody expects them to come to a decision then.
The reason it's on the table now is that the European Commission would like to tidy up VAT and the way it operates throughout the member states. They believe that if we are to really have a single market, then VAT should be applied in much the same way across the EU.
Irish and Danish travel agents avail of a derogation from paying VAT on their services while in other countries their governments have insisted they must pay. The commission wants to get rid of this exception.
Brendan Moran of the ITAA says it's not affecting the common market if it was such a boon, every travel agent in Europe would be operating from Ireland and Denmark.
But if the commission absolutely insists on them paying the tax, he and his 365 members would prefer it to be levied on their gross profits from package holidays and he estimates it will add €3 to every €100 the holiday maker pays.
It's something of a nightmare scenario for book-keepers. Air travel is VAT free because it poses the question of what proportion of the VAT each country the plane flies over would collect. Travel agents could end up with much the same problem having to recoup their share of VAT from all the different EU countries.
The end result could be businesses that are crying out for governments to agree a common VAT policy together with a central clearing agency to simplify the matter. This would be a long way from Finance Minister McCreevy's current policy of "hands off our VAT".
