PUBLIC SERVICES:THE INTRODUCTION of VAT on local authority services may mean higher charges for the public.

The Government introduced VAT on a range of local authority services, including waste collection, recycling, off-street parking, toll roads and the operation of leisure facilities, in yesterday’s Finance Bill.

The move follows a European Court of Justice ruling in July 2009 that local authorities and public bodies must impose VAT on a range of services to avoid distorting the market between private and public operators.

Private operators already pay VAT on such services.

However, Fine Gael MEP Mairead McGuinness said the obligation on local authorities to register for VAT “must not be a cloak for slapping higher charges on to the public or businesses”.

From July 1st, 2010, these local authority services will attract a VAT rate of 13.5 per cent or 21 per cent, depending on whether the equivalent private sources attract VAT at the lower or standard rate.

The Department of Finance said the impact on people who availed of local authority services would “depend on whether the VAT is passed on by the public bodies”.

It added that if authorities chose to pass on the VAT the impact would be “limited” as the public bodies would also now have an entitlement to deduct VAT on their inputs – the costs they incur in providing services to the public and to business.

Education, health, water and passenger transport services will not become subject to VAT as they are otherwise exempted from VAT. Purely regulatory functions such as parking fines, fees for passports and driving licences, development levies, casual trading licences and certificates of compliance will also remain outside the scope of VAT.

Labour Party finance spokeswoman Joan Burton said the move could “mean extra hardship for many families and households”. There was a “double whammy” for households on waste collection, for which income tax relief would be abolished from next year.

Sinn Féin finance spokesman Arthur Morgan also criticised the abolition of tax relief on bin charges, saying it would punish low-income families disproportionately.

However, employers’ group Ibec said businesses would welcome the introduction of a level playing field in relation to VAT on services such as waste collection and parking in cases where the public sector was in competition with private enterprise.