This is a key element of the Public Consultation announcement by the Minister for Finance on Budget day. The report is the outcome of a detailed review and initial consultation process over the last eighteen months involving representative bodies, including ICAI.

Brian Keegan, ICAI Director of Taxation, said: “The review of the VAT on property is bona fide attempt to improve a particularly complex area of tax law. The moves towards offering some relief to the educational and financial sectors are welcome as is the removal of different VAT treatments based on the length of a lease of property. This latter initiative could be of benefit in particular to Small and Medium Enterprise. Understandably the overriding concern will be not to distort either the commercial or the residential property market but we feel that these balanced proposals can achieve this objective.”

While the proposals are designed to arrive at a simpler VAT system, they are in themselves quite involved. However, three main strands of change can be identified:

The elimination of the artificial distinctions between “long leases” and “short leases” of property – this has given rise in practice to valuation difficulties and uncertainties as to the amount of VAT which might be due.

A new principle that the rent on residential accommodation could never be subject to VAT.

A new “capital goods scheme” – this mirrors existing arrangements in many other EU states. Simply put, this will allow businesses whose activities are largely VAT exempt to obtain some credit for VAT they may have paid on the purchase or development of premises.

ICAI urges interested parties to avail of the Minister’s invitation to further consultation. The proposed changes are not imminent, and will not be implemented until 2008 at the earliest.