The Government has backed off from plans to extend commercial rates to thousands of guesthouses, but Minister for the Environment, Noel Dempsey, has indicated to a leading industry representative group that he favours the introduction of a new licensing system under which anyone planning to take in paying guests would pay a fee to the local authority.

The Minister of State at the Department of Finance, Martin Cullen, has indicated that the Valuation Bill, designed to overhaul the system under which commercial rates are determined, will go before the Cabinet shortly. Publication of the Bill had been promised before Christmas, but it has been held up in the legislative pipeline.

According to Mr Cullen, any move to extend rates to B & Bs and other forms of guest-house accommodation will have to be postponed until all such accommodation, including unregistered guest-houses, can be brought within the tax net.

"At present, there are just under 4,000 B & Bs registered with Bord Failte. There are another 6,000 unregistered B & Bs. There could also be 6,000 new homes around the country where people are taking in guests," according to the Minister.

The process of completing a register of all these premises is likely to be lengthy. Senior tourism sources have indicated that it would involve an enormous amount of bureaucracy and a heavy reliance on the co-operation of people in the business, a co-operation likely to be withheld in many cases. However, Mr Cullen insists that it would be unfair to extend the rates burden to the registered premises alone as this would leave the owners of unregistered accommodation with an unfair advantage: "We need to have everyone in the net."

Hoteliers and proprietors of upmarket country home guesthouses insist that B & B owners already enjoy an unfair competitive advantage.

The Minister accepts that they have a case. "Clearly, B & Bs have changed dramatically over the years from the days when they were homes with a couple of rooms used to provide extra income. Many B & Bs are now as big as small hotels. I have a clear view that where there is a commercial business, it should be liable to rates. However, the cabinet will be making the final decision."

According to the Town & Country Homes Association's Meath representative, Ann Marie Russell, Meath TD and Environment Minister, Noel Dempsey, told their group recently that he favoured in principle the introduction of a new licensing system under which all providers of accommodation would pay a fee in return for a license from their local authority.

"The extension of rates would wipe us out completely as most guest-house and B & B owners in Meath are taking in £8,000 a year at most. Mr Dempsey said that the Department favoured a licensing system though he would have to talk with the various county managers. We are awaiting confirmation of this view on paper."

A Department spokesman declined to comment on the report and Mr Dempsey was not available to discuss the matter.

According to Ms Russell, a new licensing system would bring benefits to approved guest-houses as it would mean that they could be listed in overseas guides. A licence could serve as a guarantee of certain standards as far as guests are concerned.

Interestingly, however, the Tourism Minister, Jim McDaid, came out against the introduction of a mandatory system of licensing a couple of weeks ago, arguing that such a system would be burdensome and that the matter was best left to market forces.

While the question of extending rates to B & Bs has attracted most attention, new valuation legislation may have many other effects, including the extension of rates to new areas such as wind farms and land over which fibreoptic cable has been laid as well as to activities hitherto exempt, such as sports clubs. A rebalancing of the rate burden to reflect ongoing changes in relative property values is anticipated along with moves to have properties revalued on a much more regular basis.

The Junior Finance Minister, Martin Cullen, insists that the overall commercial rates burden will not rise ahead of inflation. Some of the proposed changes are being examined closely to ensure the minimum prospect of a legal challenge later on. "A lot of the changes depend on the Attorney General office's view of what is legally possible."