Lenihan Eyes UK VAT Rate To Establish Ireland's Next Move

by Jason Gorringe, Tax-News.com, London

09 November 2009

Irish Finance Minister Brian Lenihan has hinted that a decision will be taken on Ireland’s Value-Added Tax rate in the December budget in order to discourage taxpayers from crossing the border to Northern Ireland to take advantage of the UK’s reduced VAT rate of 15%.

Whilst Lenihan noted that the British VAT ‘holiday’ was to come to an end from January 1, 2010, he underscored that the government wanted to deter the Irish taxpayer from crossing the border to avail of lower-priced goods during the Christmas period, as was seen last year, to the detriment of Irish businesses and government coffers.

Lenihan observed that the UK budget, which will be presented before December, will allow Ireland time to react in order to ensure that the Republic is competitive with outlets in neighbouring Northern Ireland. Meanwhile the Minister appealed to the Irish populace to shop locally, and support the state.

Lenihan admitted that it was a mistake on the government’s part to increase the VAT rate whilst the UK cut its rate, hinting that the December budget would not contain another hike to VAT.

Instead the Minister may side with a recommendation advocated by Chartered Accountants Ireland, which called for the government to revise its 21.5% rate downward in order to stimulate the economy.

But at a time when the government is faced with the challenge of downsizing its debt by EUR4bn, a significant cut to the VAT rate would appear unlikely.

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