THE changes proposed to the pilot scheme to encourage development in certain seaside resort areas can be seen as a serious set back for the tourism sector in the fifteen resort areas around the country where the scheme applies.

The Seaside Resort Scheme was introduced to encourage renewal and development in the targeted areas during a three year period commencing on July 1st, 1995. Now, scarcely nine months into the period, some of the incentives introduced a year ago are being withdrawn.

Developers with projects in the pipeline and who do not qualify under the transitional rules provided for in the bill, can be excused for feeling aggrieved.

The principal incentive announced a year ago was the availability of 100 per cent capital allowances for certain construction costs, including the costs of constructing registered holiday cottages and apartments or other self catering accommodation listed or registered under the Tourist Traffic Acts.

At the same time, Double Rent Allowances (DRAs) were extended to traders operating from rented facilities within the seaside resort areas. In many cases, the interaction of these two incentives, rather than either incentive in isolation, is of critical importance to an assessment of the viability of the project.

From the tenant's (or operator's) perspective, the availability of DRAs reduces the after tax cost to it of letting the property, and encourages the tenant to take out longer term lettings. The successful rejuvenation of the Temple Bar Area is testimony to the effective interaction of these two incentives.

The changes proposed in the bill mitigate against this interaction by providing that only one of the incentives (i.e. double rent allowances or capital allowances) can apply to future developments of holiday cottages, holiday apartments or other listed self catering accommodation.

The second change announced this week restricts the manner in which capital allowances for registered apartments and other self catering accommodation can be set off for tax purposes. The incentive as introduced last year, enabled the capital allowances available to be used to shelter all forms of income of the operator or landlord, as the case may be.

In future, an investor providing capital for a project and letting out the property to an operator will only be able to set the allowances against rental income rather than any other form of income such as salary.

In future, the allowances are only likely to be attractive to persons whose principal income is rental income.

Neither of the changes will apply where a binding contract in writing for the acquisition and construction of a holiday cottage or apartment was entered into, or an application for planning permission for the construction of the holiday cottage or apartment was received by a planning authority before March 28th, 1996.

If either of these conditions are satisfied, double rent allowances and capital allowances will be available in respect of the project whilst the capital allowances can broadly be set against all forms income.

These let out provisions seem extremely limiting, given that the incentives in the form in which they were introduced were only effective on July 1st, 1995.

A more acceptable approach might have been to base the transitional arrangements on similar provisions introduced in the context of the recent changes to the Business Expansion Scheme. This would see the incentives as originally introduced being available where developers or promoters can prove that they had intended to proceed with the development on or before March 28th.

It should, of course, be emphasised that the changes to the seaside resort area regime apply only to holiday cottages, holiday apartments and other self catering accommodation. The rules in relation to other projects such as theme parks, interpretative centres, leisure centres and restaurants etc. remain unchanged.