Govt to enjoy new flexibility regarding VAT rates following decision at meeting of EU Finance Ministers - MEP Kelleher

Published on: 18 January 2022

- New Zero Rate and Super-Reduced Rate now available on seven categories of services and products -

“Following a unanimous agreement by the Finance Ministers of the EU Member States it may now be possible for the Irish Government to apply a Zero Percent VAT rate or super-reduced VAT rates on female sanitary products and on a wide range of other services and products such as solar panels and electric cars,” says Fianna Fáil MEP, Billy Kelleher.Kelleher, a member of the European Parliament’s Tax Committee, FISC, was commenting after EU Finance Ministers agreed Council Directive amending Directive 2006/112/EC as regards rates of value added tax on December 7th. The next step will be the European Parliament issuing its opinion before Finance Ministers can formally adopt this new directive.“This is an important step in changing the EU’s VAT rules, and making them fit for purpose in the modern age, removing exemptions and reduced rates for some fossil fuel industries and focusing the beneficial rates on items for public good and sustainability. Originally published by the Commission in 2018, it has taken over three years to reach agreement, so this announcement will be very welcome and very pertinent to a number of sectors.“Under the proposals, a zero rate and super-reduced rates can be applied on up to seven categories of services or products.“One area where a Zero or Super-Reduced rate could be applied is in the area of female sanitary products. The call for an end to "period poverty" or the ‘tampon tax’ are issues that have received considerable media coverage in recent months. The amended directives refers to ‘pharmaceutical products used for medical and veterinary purposes, including products used for contraception and female sanitary products, and absorbent hygiene products’.“While certain types of sanitary products in Ireland already enjoy a zero percent VAT rate, this change should allow all sanitary products, including sustainable versions, to be either zero VATed or enjoy the Super-Reduced rate by Revenue.“The new category of super-reduced rates, below 5%, can be used on up to seven categories of services or products.“One such category relates to transport of passengers, such as electric motor vehicles and bikes. This could be transformative for the electric car industry in Ireland because at present e-cars are subject to the top VAT rate of 23%, increasing the cost threshold for those wanting to make the switch to clean, electric vehicles.“Additionally, it will now be possible to apply the super-reduced rate to the supply and installation of solar panels on and adjacent to private dwellings, in addition to public buildings. Again, this will significantly reduce the upfront cost of installing these incredibly sustainable sources of heat and electricity.“The Irish Government should embrace this opportunity wholeheartedly. Choices will have to be made in terms of which category receives the Zero percent rate and which categories are to receive the super-reduced rate, and the trade off in terms of reduced VAT receipts. However, there is significant scope for the Government to do what is both right for our citizens and do what is necessary for our planet,” concluded Kelleher.