Keeping the VAT rate at 9 percent would cost the state 500 million euros


The extension of the reduced VAT rate for the hospitality and tourism sector until the end of next year would cost the state treasury 500 million euros, stressed Finance Minister Paschal Donohoe.

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

That rate is set to return to 13.5 percent in September, raising fears in the sector that the hike will threaten the company’s viability.

Industry lobby group Restaurants Association of Ireland has already called on the government to keep the 9 percent rate, arguing that it would jeopardize the survival of its members.

Accounting and consulting firms, including PwC, recently predicted a spate of bankruptcies as support is eased or halted due to pandemics.

PwC announced last month that Ireland’s corporate default rate was 19 percent higher year-on-year in the first quarter.

Mr Donohoe was asked about the rate of VAT by newly independent TD Violet-Anne Wynne in a parliamentary question last week.

“I have been informed by Revenue that the estimated cost of extending the 9 percent VAT rate for hospitality and tourism services beyond September 1, 2022 through December 31, 2023 would be in the order of €500 million,” said Mr. Donohoe in his written reply .

“This estimate is based on the most recent available third-party consumption data and assumes no changes in consumer behavior.”

Figures from the Central Bank of Ireland last month showed consumer card spending here rose 30 per cent year-on-year in February as consumers returned to shops and restaurants as Covid restrictions were eased.

Restaurant card spending rose 258 million euros, or 169 percent, in February. Entertainment spending increased by 48 percent or 75 million euros.

Restaurants and the lodging sector have also drawn on debt stores – a government measure that has allowed them to delay paying some taxes, such as VAT.

The VAT rate of 13.5 percent for restaurants, tourism and some other sectors was also lowered to 9 percent during the 2011 financial crisis to help businesses survive and create jobs.

By 2018, however, the rate was firmly in the government’s line of fire. A Treasury Department report earlier this year insisted that at the time the 9 per cent VAT rate for the sector was a “significant deadweight” on the economy and that a return to 13.5 per cent would not hurt the economy.

The sector booked the reduced rate for the creation of almost 100,000 jobs.

But the government said the reduced tax rate cost the treasury €3.2 billion between 2011 and 2018.

Also in 2018, the Revenue Commissioners estimated that a return to the 13.5 percentage rate would bring in an additional 527 million euros in VAT in a full year.

“I believe that in a new economic reality where the economy is strong, growth is broadly balanced and full employment is on the horizon, it is appropriate to increase the VAT rate in the tourism sector to 13.5 percent from January 2019,” he said Mr Donohoe in his October 2018 budget speech.

He said the measure would raise another 466 million euros for the treasury in 2019. Keeping the VAT rate at 9 percent would cost the state 500 million euros

Fry Electronics Team

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