McCreevy upbeat on zero rate VAT

IRELAND was confident of retaining its zero rate VAT on children’s shoes and clothes despite a plan to harmonise rates discussed by EU finance ministers in Italy at the weekend.

The European Commission is pushing to rationalise VAT rates, especially on the range of goods that enjoy special reduced VAT rates in different countries.

Taxation Commissioner Frits Bolkestein has warned that if agreement is not reached, the temporary arrangement allowing special reduced rates on goods will come to an end at the end of the year.

This would push up the cost of a range of goods and services that have a 13.5% VAT rate to the normal rate of 21%.

Finance Minister Charlie McCreevy was confident that the zero rates on children's clothing and shoes will remain and he was supported by British Chancellor Gordon Brown.

Mr McCreevy said any change required all the ministers to agree and Ireland would veto it if necessary.

"No country suggested we should drop our zero VAT rate on these products and we will have even further support on this from the in-coming members who do not favour harmonising tax rates," he said.

Mr Brown said putting VAT on children's shoes and clothes was contrary to the spirit behind the introduction of the tax. "The social aspects have to be taken into account it would be a regressive step and would increase the cost to mothers and families to bring up their children."

He added that he believed agreement can be got on the issue when it is discussed at a future meeting of finance ministers.

The commission has proposed that just a short list of goods and services should carry a reduced rate of VAT, and that this list should be the same in every State.

Many of the items, such as cut flowers, restaurant meals, pay-TV, bicycle repairs and house repairs already enjoy a lower rate, which in Ireland is 13.5%.

France is anxious to have the proposal go ahead as it gives them the reduced rate for restaurants that they have been seeking.

While Germany has problems with this, France is expected to win them around. The impact of the EC proposal on the internal market will be assessed by a technical group later this month and make proposals on possible changes.