Ministers are considering cutting the VAT rate on internet connections as part of Budget 2025, in a move which could save consumers more than €40 on their internet bills.
Early preparations are under way for the next budget which will be delivered on October 1st. Two sources have confirmed that a cut to the VAT rate for internet connections is under consideration and this could result in savings of more than €40 on a consumer’s yearly bill, as well as offering savings to businesses. The rate is 23 per cent and this could be cut to 13.5 per cent, the reduced rate which is applied to some essential goods and services. A source said the cut was being examined for broadband providers.
It is understood that such a cut would cost about €60 million. The idea of a VAT rate cut was also examined as part of the recent Tax Strategy Group (TSG) papers.
The papers said that there is scope to apply a reduced rate of VAT to internet access services as part of digitalisation policies. Under an EU directive, member states can apply a reduced rate of VAT to internet access services to promote their development. The scope of the reduction would not permit a zero rate to be applied, however.
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“It has been argued that such a reduction would lead to lower costs for consumers and encourage take-up of internet access,” the papers stated.
Officials warned, however, that several challenges would need to be considered if applying a reduced VAT rate to internet access services.
“Given the range of ways a person or business can connect to the internet, from computers and smartphones to more recent developments such as televisions and personal watches, the definition of internet access would need to be very carefully considered to ensure that digitalisation policy and fiscal neutrality were both respected.”
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There were also concerns “about how such a policy could lead to opportunities for price manipulation about mixed supplies and the application of two different rates of VAT, ie where a standard rated supply — for example, broadcasting or telephone service — is supplied along with the internet access”.
The papers also warned that in addition to difficulties ensuring a price reduction was passed to consumers, there was “a policy concern” that a VAT reduction “is not the most appropriate way to support investment in infrastructure versus a direct subvention or contract tied to performance targets, for example coverage in rural areas, broadband speeds available to business, etc”.
The proposed cut is understood to have support in the Department of Enterprise, which is headed up by its Minister, Peter Burke. Meanwhile, there continues to be strong resistance within Government to the suggestion of a return to the 9 per cent VAT rate for hospitality. A further temporary VAT reduction would cost the exchequer €764 million for the full year. Last week, the TSG said such a move “would constitute an enormous fiscal transfer of taxpayers’ money to the sector which the evidence available at present does not support”.
In a separate paper on corporation tax, the group again highlighted the concentration risk at the heart of the business tax base, noting that foreign-owned multinationals accounted for 84 per cent of €23.6 billion collected in 2023, with the 10 largest payers accounting for €12.3 billion (52 per cent of receipts), down from 57 per cent in 2022.
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