0% VAT on bicycles ruled out at EU-level; but Irish Government is allowed to lower rate

Any hope of an EU tax change allowing a 0% VAT rate on bicycles, rentals and repairs is now gone — the issue is now if the Irish Government will choose to reduce the rate from 21% to one of the two reduced rates — 13.5% or 9%.

The decision will be made in the run-up to the Government’s Budget 2023 in October.

Replying to a question from IrishCycle.com, a spokesperson for the Department of Finance today said: “I can confirm that the EU VAT directive would now permit a reduced rate of either 13.5% or 9% for bicycles. Any changes to VAT rates will be considered as part of the normal budgetary process.”

The European Cyclists’ Federation (ECF) is a Brussels-based umbrella group of cycle campaign groups which lobbied for a 0% VAT rate on bicycles. The ECF has confirmed to IrishCycle.com that it now agrees that the EU-level legal interpretation taken of the revised directive does not allow a 0% rate.

The ECF’s lobbying has however led to bicycle sales and services being added to the list of items to which EU member states can apply a reduced rate of tax.

Michael Brennan, a spokesperson for the ECF, said: “Our understanding is that the revision would not allow for a 0% VAT rate on bicycle sales, rentals and services, but it does allow for a reduced rate… So, Ireland can reduce VAT from 23% to 9%.”

He added: “Obviously we would be very disappointed if the govt used the fact they cannot put 0% VAT as an excuse [not] to reduce down to 9%.”

Parliamentary questions

Both Deputy Darren O’Rourke, Sinn Fein spokesperson on climate and transport, and Deputy Jim O’Callaghan, Fianna Fail justice spokesperson recently asked parliamentary questions on 0% VAT on bicycles.

A written reply in the name of Finance Minister Paschal Donohoe said: “I am advised by Revenue that the VAT rating of goods and services is subject to the requirements of the EU VAT Directive, with which Irish VAT law must comply.”

He explained: “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 the Directive, in respect of which Member States may apply a lower rate or exempt from VAT. Bicycles, e-bikes and cargo bikes have not previously been included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they have been liable to VAT at the standard rate.”

“Following a new agreement on VAT rates coming into force in April, officials in my Department are currently reviewing the options now available to Ireland in setting VAT rates. This will include consideration of the new options available to Member States as a result of the recently updated EU VAT rules when setting VAT rates as well as the new limitations introduced on how reduced rates may be applied. It should be noted that the amended VAT rules will not permit a zero rate of VAT to be applied to the sale of bicycles,” the Minister said.

He said that decisions about tax changes are generally taken as part of our normal annual Budget preparations and any change this year will be considered by the Tax Strategy Group prior to Budget 2023.

The Department of Finance outlined how traders are not required to separately identify the VAT yield generated from the sale or supply of specific products or services but by using third-party information sources, that “Revenue estimates that the annual VAT yield from the supply of bicycles (of all forms) is in the region of €14m, based on 2022 VAT base.”

The Minister’s reply added: “This suggests that, if there were no behavioural change by consumers, the Exchequer cost of a reduction in VAT on bicycles from 23% to 13.5% could be in the region of €6m annually.”

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