Agricultural contractors are seeking a VAT rate reduction from 13.5% to 9% for all activities provided by contractors for a period of two years in Budget 2019.

The calls come from the Association of Farm and Forestry Contractors (FCI) who said the services provided by contractors are as important to the agriculture sector as the hospitality sector is to the tourism sector.

The hospitality sector received a similar reduction in VAT rate in 2011 to provide a kick-start following the economic crash and the FCI believes agricultural contractors now need something similar.

FCI chair Richard White said the reduction in VAT would provide a huge cashflow benefit to farms and mean a cost saving close to €20m for Irish farming. He said it would help farmers work through the major forage difficulties at present.

Black economy

The FCI also said the reduction in VAT would significantly reduce the level of “black economy” activity in the sector. It estimates the level of such activity in the agricultural/farm and forestry contractor sector is running at close to 30% of all turnover.

The annual spend on contracting services per farm is estimated to be in the region of €5,000, which equates to a sector turnover of €650m. If 30% of this activity is part of the "black economy" it means there is €195m in sector turnover for which no VAT is returned.

By FCI calculations, reducing the VAT rate to 9% and removing “black economy” activity would result in a drop of just €3m in VAT revenue compared to the present situation.

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