Ibec has called for an indefinite extension of the 9 per cent VAT rate for the tourism and hospitality sectors to help businesses grappling “spiralling costs and uncertain demand”.
The VAT rate for tourism and hospitality was cut from 13.5 per cent to 9 per cent during the pandemic to protect businesses, and has since cost an estimated €300 million.
Having been extended on a number of occasions, the 9 per cent rate is due to revert to 13.5 per cent on September 1st.
Will ending the 9% VAT rate spell disaster for the hospitality sector?
Ibec wants the Government to maintain the 9 per cent VAT rate indefinitely for the ‘experience economy’, encompassing the likes of hospitality, tourism, retail, entertainment, and the arts. The association says the sector employs more than 300,000 people, or 20 per cent of the private sector workforce, and is worth €4 billion to the Irish economy.
Executive director of membership and sectors at Ibec Sharon Higgins said that while the 9 per cent rate was brought in as an emergency measure, “the reality is that many businesses across the country are now facing spiralling costs and uncertain demand given the economic backdrop”.
She said a projected rise in the minimum wage of up to 12 per cent in the coming year, along with other costs such as auto-enrolment, “will contribute to further financial strain”, noting that they could add as much as 17 per cent to wage bills by 2030.
“More fundamentally, tourism is an internationally competitive market and our 9 per cent VAT rate for the sector keeps us competitive in an EU where 20 other countries have VAT rates for accommodation at 10 per cent or below,” she said.
Chief executive of the Restaurants Association of Ireland, Adrian Cummins, said that they have been campaigning for more than a decade to fix the food service sector VAT rate at 9 per cent.
“It’s feasible for the Government to extend it, because they’re awash with money ... Our ask is for the Government to extend it for the lifetime of this Government,” he said.
He added that there is precedent for the Government to separate out sectors such as food and accommodation, and retain the 9 per cent rate for certain industries.
“There is support from Government party back benchers for it being retained for restaurants and food service industry,” he said.
However, Ibec’s Sharon Higgins said the group favours a single rate for the entire experience economy, “given the shared product, opportunity and challenges in the sector”.
A Department of Finance spokesperson said there are no plans to extend the 9 per cent reduced rate beyond August 31st.
The spokesperson highlighted a recent department assessment, which found that there is no longer an economic case for the temporary rate as the “economy has rebounded strongly from the pandemic and that economic activity is now above pre-pandemic levels”.
The assessment found that the reduced rate is “both regressive and very costly, and that this cost represents a transfer from taxpayers to the sectors which it covers”.
