Reduced VAT rate of 9% for tourism and hospitality will be extended until early next year

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

The measure will be signed off by Cabinet ministers in a memo by Treasury Secretary Paschal Donohoe this morning.

The decision to lower the tax rate is said to cost taxpayers over 200 million euros.

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

But a senior source said the government is keen to help the hardest-hit sector after the end of the Emergency Wage Subsidy Scheme (EWSS).

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 aimed at helping businesses survive the pandemic.

That rate was expected to fall back to 13.5 percent in September, fueling fears in the sector that the hike would threaten the company’s viability.

While it’s not exactly clear how long the lower rate will apply, it’s expected to return to the higher rate of 13.5 percent sometime in the new year.

Secretary Donohoe is set to make an announcement after today’s Cabinet meeting that is likely to be welcomed by the industry hardest hit by the pandemic.

Culture Minister Catherine Martin has previously said she would support an extension of the 9 percent rate for the sector.

She said she will “press” cabinet colleagues to keep the 9 percent rate.

However, she also acknowledged that it will ultimately be a decision for Secretary Donohoe.

That Irish Independent reported yesterday that Minister Donohoe had previously said that extending the reduced VAT rate until December next year would cost taxpayers 500 million euros.

“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 response to a parliamentary question.

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

A senior government source said extending the lower VAT rate at the start of the new year will cost taxpayers “over 200 million euros”.

The Chief Executive of the Restaurants Association of Ireland (RAI), Adrian Cummins, has previously called for the 9 per cent rate to remain, warning it would jeopardize the survival of its members.

Accounting and consulting firms, including PwC, recently predicted a spate of bankruptcies as pandemic support is scaled back or suspended.

Last night Mr Cummins welcomed the Government’s move and said it would help restaurants and pubs ahead of a “difficult tourism season”.

“Our association will work to maintain the 9 percent VAT rate at least until the end of 2023,” he said.

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. Reduced VAT rate of 9% for tourism and hospitality will be extended until early next year

Fry Electronics Team

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