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News : Irish Economy Last Updated: Oct 13, 2010 - 8:05:07 AM

Irish Budget 2011: Top rate of VAT may rise to 23%; Economist calls for single rate
By Finfacts Team
Oct 12, 2010 - 5:40:10 AM

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Irish Budget 2011: An international VAT compliance firm said on Monday that with the corporation tax rate of 12.5% protected, a rise in the standard or top rate of VAT to 23% is likely in the December 2010 Budget. Meanwhile, an economist is expected to call today for a single rate of VAT at a budget conference organised by the Economic and Social Research Institute (ESRI).

Ireland has both zero, 13.5% and 21% rates.  

Dublin-based TMF VAT Services said on Monday that following the UK’s announced 2.5% VAT increase to 20%, from January 2011, the Minister for Finance Brian Lenihan will have flexibility to raise the top Irish VAT rate by as much as 2%.

TMF said a common European strategy to pay for low business taxes (payroll and corporation taxes) has been to raise consumption taxes such as VAT.  Ireland attempted this at the outset of the financial crisis with a 0.5% increase in VAT to 21.5% in October 2008.  However, due to a sharp drop in trade as shoppers crossed the border to Northern Ireland to take advantage of the 17.5% rate and then 15% VAT rate - - introduced by Gordon Brown government as a temporary stimulus - -  the Irish government was compelled to reduce the rate back to 21% in January 2010.

ESRI Budget Conference

UCD economist, Joe Durkan, will say at the ESRI conference today that  the tax system is heavily geared to goods with a high income elasticity (e.g. cars) with exclusions for many goods and services (e.g. food). A standard VAT rate applied across the board would have the effect of reducing the variability of indirect receipts when demand falls or weakens.

Durkan will say that there are more useful redistributive measures than have a zero or low rate of VAT.

ESRI conference papers (one pdf file)

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