Reduced 9pc VAT rate for tourism and hospitality to be extended to early next year

The lower rate of 9pc VAT for the hospitality and tourism sector is set to be extended until early next year, the Irish Independent understands.

he measure will be signed off by Cabinet ministers this morning in a memo from Minister for Finance Paschal Donohoe.

The decision to cut the rate is understood to be costing the taxpayer over € 200m.

The lower rate of 9pc was supposed to expire at the end of August.

However, a senior source said that the Government is anxious to help the hard-hit sector following the expiration of the Emergency Wage Subsidy Scheme (EWSS).

The 13.5pc VAT rate that normally applies to the sector was cut to 9pc after the 2020 budget as part of fiscal packages designed to help businesses survive the pandemic.

That rate was due to revert to 13.5pc in September, raising fears in the sector that the hike will put business viability in jeopardy.

While it is not clear exactly how long the lower rate will apply for, it is understood that it will return to the higher rate of 13.5pc at some stage in the new year.

Minister Donohoe is set to make an announcement following today’s Cabinet meeting in a move that is set to be welcomed by the industry which has been among the hardest hit by the pandemic.

Culture Minister Catherine Martin has previously said that she would be in favor of extending the 9pc rate for the sector.

She said she will be “pressing” Cabinet colleagues for the 9pc rate to stay.

However, she also admitted that it will ultimately be a decision for Minister Donohoe.

The Irish Independent reported yesterday that Minister Donohoe has previously said that extending the reduced VAT rate until December of next year would cost the taxpayer € 500m.

“I am informed by Revenue that the estimated cost of extending the 9pc VAT rate for hospitality and tourism-related services beyond September 1, 2022 until December 31, 2023 would be in the region of € 500m,” Mr Donohoe said in response to a parliamentary question.

“This estimate is based on the most recently available third-party consumption data and assumes no behavioral changes by consumers.”

A senior government source said that extending the lower VAT rate early into the new year will cost the taxpayer “over € 200m”.

The Restaurants Association of Ireland (RAI) chief executive Adrian Cummins has previously called for the 9pc rate to be kept, warning that its members’ survival will otherwise be jeopardized.

Accountancy and consultancy firms including PwC have recently predicted a wave of insolvencies as pandemic supports are scaled back or ceased.

Last night, Mr Cummins welcomed the move by the Government, saying that it will help restaurants and pubs ahead of a “difficult tourism season ahead”.

“Our Association will be advocating for a continuation of the 9pc VAT rate for the end of 2023 at least,” he said.

The 13.5pc VAT rate for restaurants, tourism and some other sectors was also reduced to 9pc during the financial crisis in 2011 as a measure to also help businesses survive and create jobs.