Michael Lowry (Tipperary, Independent)
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85. To ask the Minister for Finance to consider revising the VAT regulations for small bus operators, particularly those involved in school transport, to allow them to reclaim VAT on the purchase of new buses, noting that the current VAT rate of 23% with no reclaim option places a significant financial burden on these operators, especially given the lack of a second-hand market and the impact of Brexit on import options; and if he will make a statement on the matter. [41878/24]

Jack Chambers (Dublin West, Fianna Fail)
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The VAT treatment of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the VAT Directive provides that all goods and services are liable to VAT at the standard rate, currently 23% in Ireland, unless they fall within categories of goods and services specified in Annex III of the Directive, in respect of which a Member State may decide apply a lower rate, subject to strict rules including limits on the numbers of categories to which lower rates may be applied.

Under Annex III of the VAT Directive, it is possible to apply a reduced rate or a zero rate of VAT to passenger transport including their accompanying goods such as baggage. However, Ireland’s scope to follow such an approach for this sector is restricted owing to the limits imposed by the Directive on the number of categories.

Nevertheless, the Directive also allows for historic VAT treatment to be maintained by a Member State under certain conditions and, on this basis, Ireland has retained its application of VAT exemption to the transport of passengers and their accompanying baggage. This means that under Ireland’s VAT rules, suppliers of passenger transport services, including school transport, do not register for VAT, do not charge VAT on the supply of their services and, consequently, have no VAT recovery entitlement on their input costs.

In accordance with the EU rules, Ireland may continue to apply this historic VAT exemption on the supply of domestic passenger transport but, for as long as the exemption remains, the conditions under which the exemption was granted cannot be changed. The introduction of a new entitlement to VAT recovery for the passenger transport sector could only be done if Ireland were to decide to end its historic exemption for the sector and bring passenger transport services into the VAT net; this would then require suppliers to register for VAT and require them to charge VAT on their passenger fares, including school transport.

Ireland has also maintained a relieving provision, the Value Added Tax (Refund of Tax) (Touring Coaches) Order of 2012, which provides for a refund of VAT on the cost of acquiring certain tour coaches by qualifying businesses. One of the key conditions of the Order, is that qualifying business is engaged in the business of carriage for reward of tourists by road under contract for group transport and that the vehicle is in that business. The Order does not extend to school transport.

The Deputy is asking about the possibility of extending the scope of the Order to small school transport operators, thereby allowing them to reclaim VAT on the purchase of new buses. Such a measure would not be compatible with the EU VAT Directive, particularly having regard to the conditions under which Ireland is permitted to maintain its historic VAT exemption for passenger transport.

Seán Fleming (Laois-Offaly, Fianna Fail)
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86. To ask the Minister for Finance to respond to two items of correspondence (details supplied); and if he will make a statement on the matter. [41972/24]

Jack Chambers (Dublin West, Fianna Fail)
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I note the issues raised in the correspondence shared by the Deputy, relating to tax treatment of Exchange Traded Funds, or ETFs, and individual savings accounts.

Regarding both the tax treatment of ETFs and individual savings accounts, it will be of interest to the Deputy that my Department published the Terms of Reference for a review of Ireland’s funds sector - ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’ last year.

A draft report has been submitted to me for consideration and this is in line with the Review’s Terms of Reference. The review was wide ranging and examined a range of issues relevant to the funds sector.

I plan to publish the report of the review shortly.