The Association of Farm & Forestry Contractors in Ireland (FCI) in its Pre-Budget 2019 Submission has requested that the Minister for Finance and Public Expenditure, Mr. Paschal Donohoe, T.D., reduce the Value Added Tax (VAT) rate on all activities provided by Agricultural/Farm & Forestry Contractors from the current 13.5% to 9%, for a period of a minimum of two years.
FCI believes that the services provided by Agricultural/Farm & Forestry Contractors are as important, if not more important, to the Agriculture and Food Industry as the Hospitality sector is to the Tourism Industry.
The reduction in the VAT rate to the Hospitality sector in 2011 provided a much-needed kick-start, which the Agricultural/Farm & Forestry Contractor sector now clearly needs.
FCI believes that a VAT reduction for Agricultural/Farm & Forestry Contractor Services will allow the agricultural sector to get the benefit of improved cash flow on farms.
Lowering the VAT on farms, most of which are not VAT registered, will support the additional financial opportunities for re-investment in additional higher genetic worth dairy and beef animals.
“This reduction in VAT will also allow farmers to work out from the huge forage difficulties presented by the spring of 2018 that have been compounded by the summer drought conditions of 2018.
!We believe that this will result in an extension of the fodder crisis on farms into 2019,” said FCI National Chairman, Richard White.
“Reducing the VAT rate from 13.5% to 9% will mean a cost saving of close to €20 million to Irish farming at this critical time,” said FCI Chairman, Richard White.
“It will improve cash flow on farms and allow agricultural/farm contractors to maintain VAT exclusive charges to take some account of the 36% increase in agricultural diesel costs”, he added.
This VAT reduction on Agricultural/Farm & Forestry Contractor services will also significantly reduce the level of Black Economy activity in the sector.
FCI estimates that the level of Black Economy activity in the Agricultural/Farm & Forestry Contractor sector is running at close to 30% of all turnover.
This results in a significant loss in VAT income for the Irish Revenue Commissioners.
Given the Dept. of Agriculture figures on farm numbers at 130,000 farmers in Ireland, FCI estimates that the average annual spend on Agricultural/Farm & Forestry Contractor services is €5,000 per farm. This equates to a total turnover in the sector of €650 million.
Given a 30% non-VAT returns in the Black Economy Agricultural/Farm & Forestry Contractor sector, this equates to €195 million in sector turnover for which there is no VAT returned.
If VAT was returned on this work at the FCI proposed reduced 9% rate, in line with the Hospitality sector, it would deliver an additional €22 million in VAT revenue to the Irish Revenue Commissioners.
FCI believes that if all of the VAT from the sector was returned at the FCI proposed reduced rate of 9% it would give a VAT return of €58 million.
This compares with the current situation where in the in the region of €455 million has a VAT return, (30% non-compliance) giving a VAT return of €68 million.
This means that the FCI proposal to reduce the VAT rate on all Agricultural/Farm & Forestry Contractor services from 13.5% to 9% would result in a very small reduction in VAT (€3 million) intake to the Revenue Commissioners, while significantly helping to encourage greater tax compliance within the sector and giving the struggling Agricultural and Forestry Contractor sector a much needed boost.
Some data from the Agricultural/Farm & Forestry Contractor Sector
Number of Farmers in Ireland 130,000
Average contractor spend/year €5,000
Total annual turnover in Irish Agricultural/Farm Contractor Sector €650 million
Number of employees in Irish Agricultural/Farm Contractor Sector 10,000
Estimated annual diesel use level in Agricultural/Farm Contractor Sector 100m Litres
VAT Calculations
Total potential VAT return from the sector is €650 million @13.5% €87 million
Real 70% VAT return from the sector is €455 million @ 13.5% €61 million
Total potential VAT return from the sector is €650 million @ 9% €58.5 million
Current VAT losses due to Black Economy in sector €26 million
Cost to Irish Exchequer of reduction in VAT from 13.5% to 9% €3 million
The FCI VAT reduction proposal is just one of ten proposals by FCI to Minister for Finance and Public Reform, Paschal Donohoe, TD in its Pre-Budget 2019 submission.
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