The Rural Independent Group of TDs today moved a Dáil Motion to propose reducing VAT rates for the hospitality and tourism sectors.
The motion, discussed on Wednesday, would restore the nine per cent VAT rate, geared at supporting food-related businesses which have seen insolvencies more than double in the first three months of the year.
While from 2011-2018 and 2020-2023 the hospitality and tourism sector enjoyed a reduced 9 per cent Value Added Tax (VAT) rate, the government later restored this rate to 13.5 per cent in September 2023. This, the Rural Group have argued, was “ill-judged and ill-advised.”
Aside from Denmark, Ireland’s VAT rate of 13.5 per cent for the tourism and hospitality sector is the highest in Europe, which was a fact highlighted in a recent campaign by the Restaurants Association of Ireland.
The motion also noted that the Government’s reliance on the accommodation sector to provide temporary accommodation for Ukrainian refugees and asylum seekers has “significantly reduced the availability of tourist accommodation and increased prices.” This accommodation shortage, particularly outside Dublin, has directly affected other tourism-related activity providers and resulted in an expected €1 billion loss in revenue last year.
Speaking today, member of the parliamentary grouping and leader of Independent Ireland, Michael Collins TD said that recent changes in Government policy and global events had put the vital industry under unprecedented strain.
“From 2011 to 2018, and again from 2020 to 2023, the hospitality and tourism sector enjoyed a reduced VAT rate of 9%. The aim of this reduction was to lower consumer prices, stimulate demand and boost employment in the sector,” Deputy Collins told the House.
“However, in September 2023 the Government restored the rate to 13.5%. This decision, widely regarded as ill-judged and ill-advised, has had a significant impact on the sector, particularly food-related businesses, which have seen closures more than double in the first three months of the year.
“According to the Restaurants Association of Ireland, whose representatives we met yesterday afternoon in Leinster House, there was a total of 212 closures in the first three months of this year. This has far-reaching consequences.
“Every restaurant closure results in the loss of 22 direct employees, on average, and approximately 13 indirect jobs. As a result of direct job losses, the Exchequer loses out on €115,310 in payroll taxes. There is a loss of annual VAT receipts to the State of €105,000 and a loss of commercial rates receipts to local authorities of €11,874. Water charges receipts worth €4,583, on average, are lost. If the workers laid off have to go on social welfare payments, the annual cost works out at around €440,000.
“Also, considerable financial losses are suffered by numerous businesses across the economy that provide services to restaurants. The closure of one restaurant could cost the State up to €1.36 million in total in one full year, according to the recent report of the Restaurants Association of Ireland produced by Jim Power Economics.”
Leader of the Rural Independents, Mattie McGrath, said that last year’s decision by government to hike the VAT rate on the sector was “misguided and imprudent,” as he called for the rate to be lowered to prevent further closures in the hospitality sector.
The Tipperary TD said that the aim of a VAT reduction was lower consumer prices, the stimulation of demand, and a boost for employment in the sector.
Deputy Danny Healy-Rae echoed calls for a lowering of the rate, alongside colleagues in the group. He said that businesses in Kerry had been struggling and that VAT rates were “militating” against businesses in the sector.
“It is very important that we bring this matter to the Government’s attention. Tourism and the hospitality sector are of vital importance to County Kerry. So much depends on it. In recent times, or since January in any case, many restaurants and small cafés have closed.” he said.
Healy-Rae said that while there were different reasons for this, the VAT rate “is the dominant one,” adding: “The increase in the VAT rate from 9% to 13.5% for the hospitality sector is having a devastating effect.”
“There has also been an increase in rates since the review, which is militating against many businesses. Rates have increased by a factor of three or four. That matter should have been included in the motion. In any case, in many of our towns, such as Killorglin and Kenmare, where businesses are also closing, there is less footfall. This is because 37% of our hotel beds and bed nights are taken up by asylum seekers and refugees. That is having a devastating effect on the footfall in restaurants and cafés. The Government must recognise this.”
The Rural Independent Group has urged the Government to permanently establish the VAT rate at 9% from Budget night in the context of Budget 2025, which is due in early October.