Business group welcomes 0.5% cut in VAT rates

BUDGET 2010’s half per cent VAT cut will lead to reduced prices in the Republic and boost retailers’ competitiveness, a leading business organisation has predicted.

In his Budget last month, minister for finance Brian Lenihan announced that the top rate of VAT would be cut to 21 per cent from 21.5 per cent from January 1st.

The move, combined with a range of excise cuts on alcohol, is designed to stem the flow of people who have been travelling from the Republic to Northern Ireland to take advantage of lower prices on a range of goods .

Chambers Ireland, which represents 13,000 businesses in the Republic, said yesterday that the VAT cut, combined with a 2.5 per cent increase in the same tax in Northern Ireland to 17.5 per cent, would give “southern retailers a real opportunity to compete with traders north of the Border”.

The combined effect of the VAT changes on both sides of the Border will be to cut the difference in rates to 3.5 per cent from 6.5 per cent.

Chambers Ireland’s chief executive Ian Talbot said in a statement that over the last year, the combined impact of the VAT increase, excise differences and the weakened sterling drove down sales in many of the Republic’s retailers, particularly those close to the Border.

“The reduced VAT rates, coupled with the changed excise rates on the sale of alcohol, will stimulate spending and generate much needed revenue streams for the Exchequer, while also helping to stem the flow of job losses, particularly in the retail sector,” Mr Talbot said.

Chambers Ireland did not give any examples of where those shopping in the Republic would make savings. However, a spokesman said that the changes would be most obvious in off-licence prices.

In his budget speech, Mr Lenihan warned the drinks industry, the main beneficiary of the changes, to play its part in cutting the cost of alcohol.

“If I find this reduction has not been passed on to the consumer I will reverse today’s reduction,” he said, when he announced the excise changes.

Chambers Ireland’s spokesman said that cheap drink was the main draw for consumers travelling to Northern Ireland from the Republic.

He argued that people travelled primarily to shop for beer and wine, but then dovetailed other purchases, such as groceries, consumer goods and electronics, with this.

The excise cuts took effect at midnight on December 9th. They were 12 cents off pints of beer and cider, 60 cents off standard bottles of wine and 14 cents off a half glass of spirits.

Following the announcement of the excise cuts, the drinks industry pointed out that much of what was on sale last month had been purchased at the old excise rates.

As a result, consumers are unlikely to see the impact of both cuts on prices until this month.

When he announced the cuts last month, Mr Lenihan pointed out that currency differences on both sides of the Border played a key role in price difference.