Major tax cut on buying bikes parked over fears consumers would not benefit

Ken Foxe

Plans for a major cut in the VAT rate that applies to buying bikes was parked over concerns the savings would not be passed onto cyclists.

In pre-budget discussions, Finance Minister Jack Chambers was briefed on Department of Transport proposals to reduce the rate that applies from 23 per cent to 13.5 per cent.

However, officials said there was a risk that consumers would not benefit, and retailers might simply increase prices to take advantage.

A pre-budget submission said that there was already significant support for bike owners through the Cycle to Work Scheme, which cost €5.5 million annually.

The officials said a VAT reduction could also be considered regressive as it would benefit those who spent most on bicycles or e-bikes.

It said: “At present, while e-bikes and cargo bikes cost more, there are bicycles sold at a wide range of price points meaning that entry level products are available to consumers already, even without a VAT reduction.”

The submission said the cost of a VAT reduction on bicycles would be €7 million per year but warned there could also be knock-on effects if it was introduced on a test basis.

Officials said it could lead to calls from others for similar cuts in VAT to be “made on a trial basis.”

They said a suggestion by the Department of Transport around a direct grant scheme might be a better approach.

The submission said: “Such an approach would allow for greater tailoring of policy to reflect differences in income, geography and any other supports already in place.”

Department officials said Minister Chambers would also need to be cautious about the timing of any announcement on VAT for bicycles.

It said an announcement in Budget 2025 would normally see the rate cut introduced in January and after the busy Christmas period.

“Any perceived delay in implementing a reduced rate is likely to be criticised by the sector,” the submission said.

“This criticism could be amplified if speculation in advance of the Budget led to a drop in bicycle and e-bike sales.”

In a commentary on the submission, Minister Chambers said he had noted concerns that the benefits of the cut might not filter through to consumers.

He wrote: “I would suggest also probing the Department of Transport further on their proposal to prioritise a direct grant with the Department of Public Expenditure in their wider budgetary submission which might better achieve their desired policy outcome.”

The Department of Transport submission, which was also released under FOI, said the Cycle to Work Scheme, while successful, was only available to people in employment.

It said a VAT cut on bicycles would primarily help students, retirees and people outside of employment.

The submission said: “Often, some of these cohorts are those that may require financial assistance to invest in a bicycle and are also those which are under-represented in cycling.”

It said a cut from 23 to 13.5 per cent would result in a “visible reduction” in prices “if passed on by traders.”

The submission added that the bicycle sales market was extremely competitive and that even if only a small number of traders passed on the cut, the rest would soon follow to “remain commercially competitive.”

It added: “The strength of the cycling lobby would be useful in monitoring compliance by traders, as its members would be quick to identify if savings were not passed on.”