VAT cut in bid to stem cross-Border shopping

EXCISE DUTY: EXCISE DUTY on alcohol has been reduced and last year’s half percentage point increase on VAT is to be reversed…

EXCISE DUTY:EXCISE DUTY on alcohol has been reduced and last year's half percentage point increase on VAT is to be reversed in an attempt to stem the flow of cross-Border shopping.

The announcement came as British chancellor of the exchequer Alistair Darling confirmed that the UK VAT rate will return to 17.5 per cent, from the current “discounted” rate of 15 per cent, on January 1st next.

This year has seen a spike in cross-Border trade as thousands of consumers flocked to Northern Ireland to stock up on cheaper alcohol and other goods. In his Budget speech yesterday, Mr Lenihan said the main reason behind cross-Border spending has been the currency differential, which is “outside our control”. However, he said, it was possible to cut consumption taxes.

Excise duty has been reduced by 12 cent on pints of beer and cider, and by 60 cent on standard bottles of wine. Duty on spirits has been cut by 14 cent per half glass, which equates to €2.80 per 700ml bottle. These reductions, which are all inclusive of VAT, took effect at midnight last night.

READ MORE

Before these reductions, the Republic had the highest excise rates in Europe for wine and the second-highest for beer, spirits and cider. Mr Lenihan warned that these reductions would be reversed if they were not passed on to consumers.

Excise on tobacco will remain unchanged.

In a further attempt to stem the migration of shoppers across the Border, the Minister announced the reversal of the 0.5 percentage point increase to the top rate of VAT imposed in October 2008. The highest rate will be restored to 21 per cent (from the current rate of 21.5 per cent) on January 1st, 2010.

This is expected to cost €140 million next year.

“Even a temporary reduction in VAT to 17.5 per cent would bring us into line with the UK and give Irish retailers a chance to get back on their feet in 2010,” said Retail Excellence Ireland chief executive David Fitzsimons.

Mr Fitzsimons said consumers would not see the excise cuts on alcohol materialise until after Christmas, as stock held by wholesalers and retailers was bought while the old rates were still in force.