Budget 2023 detailed a number of measures with respect to VAT rates, write KPMG partners Glenn Reynolds and David Duffy

VAT measures announced by finance minister Paschal Donohoe included updates on the expiry dates of the existing temporary VAT rate reductions for gas and electricity, and the tourism and hospitality sector, as well as signalling a number of new VAT rate reductions in the newspaper and health sectors.

The latter new reductions follow changes agreed by EU Member States to the EU VAT Directive earlier this year, which give Member States greater flexibility in setting reduced rates of VAT.

Gas and electricity

The minister confirmed that the temporary VAT rate of 9% for supplies of gas and electricity will be extended until 28 February 2023. This temporary rate came into effect on 1 May 2022 and had originally been due to expire on 31 October 2022. The VAT rate for these supplies is now due to revert to 13.5% on 1 March 2023.

Tourism and hospitality

In Association with

The minister did not extend the temporary VAT rate of 9% for certain goods and services in the tourism and hospitality sectors beyond the current expiry date of 28 February 2023.  The VAT rate on these supplies will therefore revert to 13.5% on 1 March 2023. 

The temporary 9% rate came into effect on 1 November 2020 in response to the challenges faced by the tourism and hospitality sectors as a result of the Covid-19 pandemic.

The goods and services covered by the temporary 9% rate include supplies of certain food and beverages in the restaurant, take-away and catering sectors; admissions to certain attractions including cinemas, museums and exhibitions; hotel, guesthouse and other holiday or short-term accommodation; and hairdressing services.

Newspapers

The minister announced that the VAT rate applying to the sale of newspapers and news periodicals, including both printed and digital editions, will reduce from 9% to 0% with effect from 1 January 2023.

Health products

The VAT rate applying to automatic external defibrillators, non-oral hormone replacement therapy and non-oral nicotine replacement therapy will reduce from the standard rate of 23% to 0% with effect from 1 January 2023. The 0% VAT rate will also apply to the remaining period products that do not currently qualify for that rate with effect from 1 January 2023.

Flat rate addition for farmers

The flat rate addition payable to farmers who are not registered for VAT will decrease from 5.5% to 5% with effect from 1 January 2023. The flat rate addition compensates unregistered farmers for the VAT which they cannot reclaim on their purchases.

Excise Duties

Mineral oils

The minister confirmed that the excise duty rate reductions of 21 cent (VAT inclusive) per litre for petrol, 16 cent (VAT inclusive) per litre for diesel and 5.4 cent (VAT inclusive) per litre for Marked Gas Oil (MGO) will continue to apply until 28 February 2023.  These temporary reductions were previously due to expire on 12 October 2022.

Tobacco products

The excise duty on a packet of 20 cigarettes will increase by 50 cent (including VAT), with a pro-rata increase on other tobacco products. This measure took effect from midnight on 27 September 2022 and will bring the price of a pack of 20 cigarettes in the most popular price category to €15.50.

Alcoholic products

There were no increases in excise duty on alcohol products.

In line with a commitment made last year, the minister confirmed that the excise relief already available to small independent producers of beer will be extended to small independent producers of cider and perry (pear cider).

This will reduce by up to 50% the excise duty payable on up to 8,000 hectolitres of cider and perry produced by small independent producers (with an annual production of up to 10,000 hectolitres).

The qualifying production threshold for micro-brewery relief will be increased from the current production ceiling of 50,000 hectolitres to 75,000 hectolitres. This relief from alcohol products tax is available for beer produced in certain qualifying micro-breweries.

The minister indicated that there may be longer term reforms to the taxation of alcoholic products following the publication of the General Scheme of the Sale of Alcohol Bill in the coming weeks.

Late night licences

The minister announced a reduction in excise fees of 50% when applying for a Special Exemption Order required for the operation of late-night venues with effect from 28 September 2022. The reduction will reduce the cost per application from €110 to €55.