The Irish government has approved plans to temporarily drop VAT from 13.5% to 9% between 1st May to 31st Oct. This is part of its new National Energy Security Framework, which was created in response to the current energy security crisis.
This will be in addition to the €200 one off electricity payment that the Government has confirmed will be paid to households nationwide to help deal with rising energy costs.
In recent months, this crisis has been made worse by ongoing conflict in Ukraine, but had its origins during the COVID pandemic. As such, the government has stepped in to soften the impact of rising energy costs by dropping the VAT almost 4% – at a cost of almost €46 million. However this will only apply to electricity and gas so other forms of heating which have also increased significantly such as home heating oil will not be included.
Typically, VAT applies to a goods and services such as adult clothing, motor vehicles, petrol and diesel, and electrical goods – and of course, electricity and gas. Retailers, in particular, will be expected to pass along VAT reduction savings to their customers, though are not legally entitled to do so.
What will this mean for energy bills
Finance Minister Paschal Donohoe commented that the VAT rate reduction was, “being introduced in recognition of both with the challenge of the cost of living, but also in particular to offset the increase in carbon tax, which will take effect from 1st May.”
The reduction of 4.5% in VAT will result in a cut of approximately €49 to annual gas bills, and €61 to annual electricity bills, according to Paschal Donohoe. However, as the new lower VAT rate will only apply for six months, the savings are likely to be half this level. And remember the VAT decrease is coming between May to Oct when energy use is usually at its lowest and is expected to return to its original level coming into the winter period.
