Tourists will not shoulder €20m VRT charge, Donohoe insists

The new 1 per cent surcharge on vehicle registration tax for new diesel cars will generate €20 million for the State each year, but will not be shouldered by the tourism industry, Minister for Finance Paschal Donohoe has insisted.

Mr Donohoe, speaking to the Oireachtas finance committee in relation to amendments to last month’s budget, rejected criticism from TDs that the charge would amount to a “further burden” on the tourism sector.

It is estimated the levy will add an average of €400 to the cost of a new diesel car when it comes into effect on January 1st.

Fianna Fáil finance spokesman Michael McGrath said it would harm tourism as the cost of renting a car would increase at the same time as Mr Donohoe's move to scrap the special 9 per cent VAT rate for the hospitality sector comes into effect.

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“You have already made the decision to increase the VAT rate in the sector,” said Mr McGrath. “This extra money is going to come directly from tourists.

“That’s the bottom line. It’s a further burden on the sector when a very significant change has been made.”

Rude health

Mr Donohoe said he had not consulted stakeholders on the issue, but said he felt “really strongly” that a broadening of the tax base was appropriate while the economy is in rude health.

He said the €20 million it would generate was “a significant figure”. In relation to tourism, he said: “I think it’s worth bearing in mind that around half of this has to do with fleets of cars for companies. It’s not tourism.

“I would contend that the reason there has been a huge increase in car rental has been the massive growth in tourism and the income growth of the people that are coming to our country.”

On the abolishment of the 9 per cent VAT rate for the hospitality sector, Sinn Féin finance spokesman Pearse Doherty said he favoured stripping the hotel sector of the rate, but argued it should be maintained for other businesses.

“While I do believe the VAT rate should be restored on the hotel sector, there are differences in regions,” he said. “We don’t have the same kind of occupancy and rates in rural areas as urban areas.

“My concern is the increase for others in the tourism sector. At the very least it should have been incrementally increased rather than in one fell swoop.”

Special rate

Mr Donohoe acknowledged that the increased rate would have “a larger effect” on businesses outside cities, but said splitting the sector or scrapping the special rate on a phased basis was not an option for the Government.

“If not now, when?” he said. “We have an economy where parts of the country are not doing as well as others, but the economy overall is seeing very strong income growth and employment growth.

“If I had put in a varied treatment by sector, such as hotels in one go but restaurants in a more phased basis, two things would happen. Firstly, hotels would be asking why they are not getting the same treatment as restaurants.

“Secondly, we’d be back here in a year’s time and we’d be having the debate that the increase for restaurants should not happen. This was well flagged as a very live option for budget day.”