THE DECISION of the British chancellor to raise VAT in his emergency budget has been welcomed south of the Border. However, Irish owners of British property face higher capital gains tax charges.
Chancellor of the exchequer George Osborne announced the rate of VAT will increase from 17.5 per cent to 20 per cent from January 4th, 2011. Capital gains tax will move to 28 per cent from 18 per cent currently.
Minister for Enterprise Batt O’Keeffe said the new higher VAT rate would stimulate the economy of this State and create jobs.
“The move will increase consumer demand and generate retail sales at a time when we need every possible support to create jobs and build for economic recovery,” he said. “The increased VAT rate in the UK, allied with falling value of the euro against sterling, will discourage cross-Border shopping and incentivise more of our consumers to spend their money in this jurisdiction.”
Mr O’Keeffe said the move would “severely curtail” the loss in revenue to our economy as a result of cross-Border shopping, which was estimated to be €600 million.
“It also has very positive implications for our exports and our Exchequer taxation receipts.”
Fine Gael spokesman on North-South co-operation Joe McHugh said Border retailers would welcome the increase. “This may rebalance trade between the Republic of Ireland and Northern Ireland, but hoping that the euro stays weak against the British pound should not be a Government policy,” Mr McHugh said.
He said the failure of Minister for Finance Brian Lenihan to meet the British chancellor or the Northern Ireland Minister for Finance Sammy Wilson indicated the Government had no plan for Border trade or for all-island commerce.
Green Party enterprise spokesman Senator Mark Dearey said the tax increase would bring the Republic closer to price parity with Northern Ireland.
Chambers Ireland chief executive Ian Talbot said the announcement had “the potential to bring real relief to many Irish businesses by further reducing cost differentials between Ireland and the United Kingdom”.
“Many economies are only now facing up to the reality of the implications of the global economic issues of the last three years. Ireland recognised them early and is well advanced in dealing with them. The reduction in VAT will help to speed up our economic recovery,” he said.
Mr Talbot said the Government must complement the announcement by focusing on VAT and excise fraud, in particular developing a proactive programme to tackle smuggling and the black economy.
Retail Ireland, the Ibec-affiliated representative body for the retail sector, said the VAT decision was “a further nail in the coffin of cross-Border shopping, which had already declined significantly due to substantial price cuts by retailers on this side of the Border, the 20 per cent reduction in the Irish rate of excise on spirits and the 6 per cent increase in the value of sterling against the euro in the year to date”.
Director Torlach Denihan said the move would reduce some of the distortions that contributed to cross-Border shopping, helping preserve the 267,000 jobs in retailing in Ireland.
The Small Firms Association said the decision was a “welcome relief” for many small businesses in Border regions. Acting director Avine McNally said the difference in rates had been a significant contributory factor to cross-Border shopping, which had had a “devastating impact on business”.
The Association of Chartered Certified Accountants said the increase may result in some of the empty retail units in Border towns being reoccupied.
“The other main effects for Ireland is that owners of UK property will be facing an increase in capital gains tax when they sell their property,” the association said.
