The Association of Farm & Forestry Contractors in Ireland (FCI), have requested in their pre-budget 2019 submission, 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.
The FCI believes that the services provided by Agricultural/Farm & Forestry Contractors are just as important, to the Agriculture and Food Industry as the Hospitality sector is to the Tourism Industry. They pointed to the reduction in the VAT rate to the Hospitality sector in 2011, which helped provide the industry with what they call “a much-needed kick-start”. They say the Agricultural/Farm & Forestry Contractor sector now clearly needs this.
The FCI believe 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.
They also noted that lowering the VAT on farms, most of which are not VAT registered, will help 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...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.
Help reduce black economy activity -
This VAT reduction on Agricultural/Farm & Forestry Contractor services will also significantly reduce the level of Black Economy activity in the sector, according to the FCI.
They estimate 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.The FCI noted that given the Dept. of Agriculture figures on farm numbers at 130,000 farmers in Ireland, they estimate that the average annual spend on Agricultural/Farm & Forestry Contractor services is €5,000 per farm, or a total turnover in the sector of €650 million.
They added that a 30% non-VAT returns in the Black Economy Agricultural/Farm & Forestry Contractor sector, 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.
They FCI believe 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. They then compared this 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, the FCI said. They also advised that this will help encourage greater tax compliance within the sector and giving the struggling Agricultural and Forestry Contractor sector a much-needed boost.
This proposal on VAT reduction is one of ten proposals by the FCI to Minister for Finance and Public Reform, Paschal Donohoe, TD in their Pre-Budget 2019 submission.