VAT increase comes into effect


A 2 per cent increase in the higher rate of VAT came into effect at midnight.

The VAT rise is expected to raise €670 million of the total €1 billion that is to be raised by the exchequer next year.

About half of the goods and services in the State will be affected by the 2 per cent increase in the higher rate of VAT  according to the Institute of Taxation.

The 23 per cent VAT rate applies to a wide range of goods and services. Among the items that will be subject to the 2 per cent increase are: motor vehicles, petrol, electrical supplies, furniture, adult footwear and clothing, alcoholic and soft drinks, and tobacco. In terms of services, accountancy services, legal services, tax advisory services are all subject to the higher rate of tax.

Minister for Finance Michael Noonan has stressed that most food, children’s clothes, and oral medicines will remain at 0 per cent, while home heating oil, residential housing, general repairs and maintenance will stay at 13.5 per cent.

Other Budget measures that came into effect at midnight are:

Household charge: The new €100 charge becomes payable from today for some 1.6 million homeowners.

Transport: Fares on Irish Rail, Bus Éireann, Dublin Bus and Luas services are to increase by between 3 per cent and 15 per cent this week. Parking charges at railway stations are also set to rise. Carbon charges for long haul flights are expected to add 25 cent to average ticket prices.

Motor tax: Motor tax rises by an average of about 7.5 per cent from today.

Tolls: The National Roads Authority has approved a 10 cent increase on at least seven toll roads from yesterday on parts of the M1, M8, M6, Limerick Tunnel, M3, M4, M7. The M50 toll for goods vehicles has increased by 10 cent but will remain unchanged for private vehicles. Dublin port tunnel rates remain unchanged.

Education: Third level registration fees rise by €250.

Health: The monthly threshold for the drug payment scheme increases from €120 to €132. Quinn Healthcare customers face price hikes averaging some 12 per cent, while Aviva health insurance subscribers will face 15 per cent increases from February.

Banking: Rate of Dirt increases from 27 per cent to 30 per cent.

Fianna Fáil has claimed the VAT hike will further hit consumer confidence.

Finance spokesman Michael McGrath said the move was a major policy mistake which will cause more job losses.

“Consumers are, by necessity for the most part, more price-sensitive than ever before,” he said. “This VAT increase will inevitably affect shopping patterns and will undoubtedly cause further job losses in an already distressed retail sector, particularly in the early part of 2012. In some cases, for example in car sales, the VAT increase could well mean the difference between a consumer going ahead with the purchase or not.”

Mr McGrath said the move sent out all the wrong signals at a time when the domestic economy badly needed a boost. “The decision is also a kick in the teeth for the thousands of small and medium-sized Irish businesses struggling to keep their doors open,” he added.

Mr McGrath said ESRI research showed the VAT increase will disproportionately affect poorer households. “The unquestionably regressive nature of the package of measures in December’s Budget will become apparent in the coming weeks as the full effects of the Budget emerge,” he said.