THE REVENUE Commissioners have suspended the seeking of VAT payments from private, creches pending a decision on whether commercial child care, services are partly exempt from the tax.
The latest potential pre election embarrassment for the Government appeared to have been temporarily defused last night after Revenue sources said that they have not sought VAT payments from commercial child minders since before Christmas.
But the future VAT regime for private creches is still unclear. Last night the Minister of State at the Department of Finance, Ms Avril Doyle, told the Dail that the Revenue Commissioners were preparing guidelines clarifying the criteria used to decide to what extent child care services are exempt from VAT because of their educational content.
She said that child care services were generally liable for VAT under the EU Sixth VAT Directive of 1977. "The main relevant exemption is for child minding services provided by public bodies or by recognised, non profit making charities", she said.
"But child care services generally ... are liable for VAT at the Irish standard rate of VAT, which is currently 21 per cent." This applies to child care businesses with an annual turnover of more than, £20,000, she said.
Education was also exempt, she said, so creches and play schools following "a clear educational programme" may also be zero rated.
The 1977 EU Sixth VAT Directive states that the supply of goods and services, including child care, should be subject to VAT. It stipulated a wide range of exempt services, however, including those related to education, health, welfare and child protection.
At least five EU member states have decided that child care qualities for VAT free status because of these exemptions. They are Sweden, the UK, Germany, Luxembourg and Finland.
The Revenue Commissioners are understood to have begun to seek VAT payments from childcare providers a year ago. Their inspectors have not pursued such businesses in recent months, Revenue sources said.
This is because of the commitment, written into the Partnership 2000 deal, that the Revenue Commissioners would issue guidelines on the subject.
Opposition politicians characterised the measure as an anti family attack on working mothers.
Fianna Fail's deputy finance spokesman, Mr Martin Cullen said that such an imposition only be made by "an uncaring, anti social state".
"Once again the family who have no dependants on the State but where both parents work hard to rear their children are being punished by an immoral taxation system", he said.
Mr Cullen and the Progressive Democrats TD, Ms Liz O'Donnell, suggested that child care should be classified as an "educational service" and therefore exempt from VAT. The VAT imposition "will force many young mothers out of the workplace and back into the home for financial reasons alone", Ms O'Donnell said.
The Green Party MEP, Ms Patricia McKenna, called on the Minister for Finance, Mr Quinn, to withdraw the VAT imposition immediately and to introduce tax relief for child care services. "This measure is an unwarranted attack on working mothers. And because it will hike up the price of child care it will inevitably hit mothers on low incomes the hardest."