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THE DEPARTMENT OF Finance has pushed back hard against the hospitality sector’s calls for VAT on hotels, restaurants and cafes to be cut to support businesses.
VAT for the tourism and hospitality sectors was reduced to 9% during the Covid-19 pandemic at a cost of €1.2bn to the exchequer. The previous 13.5% rate was reinstated last August, despite the sector’s opposition.
Restaurants and cafes are struggling with higher business costs and in some cases reduced demand exacerbated by the increased cost of living, with many in the industry perceiving the reinstated higher VAT rate as a significant pressure on their businesses.
In advisory papers published yesterday in advance of the next Budget, Department of Finance officials said that there are a “number of reasons” why going back to 9% “remains unjustified”.
It listed the cost to the state, the resilience of the domestic economy, and Ireland’s current position as being “not significantly out of line with other EU countries in relation to the application of VAT in this sector” as among the reasons.
“The cost is very significant. For instance the cost of a further temporary VAT reduction to 9% for a full year is estimated to be €764 million,” it said.
It said that even if measure were restricted to food and catering services, it would still have an estimated full year cost of €545 million.
This would constitute an enormous fiscal transfer of taxpayers’ money to the sector which the evidence available at present does not support.”
The “resilient” domestic economy was also listed, as the department said that disposable income of households will increase as inflation eases, allowing them to spend more money in areas such as tourism and hospitality.
It added that 14 EU countries have a VAT rate of 12% or higher on food services. It also highlighted a VAT rate of 20% on food services in Northern Ireland and the UK.
While it is possible to change the VAT rate for hospitality or accommodation without reference to the other, the department said, Revenue has advised that there would be “significant practical operational concerns” in having different VAT rates applying to hotel accommodation and meals.
It said that this is because of how the sector operates, with various packages ranging from bed and breakfast accommodation to all-inclusive board and lodging packages. This could result in the underpayment of VAT as the charges for accommodation and meals would have to be divided and shared.
“This would give rise to administrative and operational complexity for both Revenue and taxpayers, as well as increased risk of avoidance and scope for manipulation of the VAT system.”
The department also highlighted that changes would have to apply to all accommodation including B&Bs and small hotels “because of the principle of fiscal neutrality”.
It added that the cost to the exchequer would “still be very significant”.
“Food makes up a far greater proportion of the overall tourism and hospitality VAT revenue than accommodation,” the department said.
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Hospitality trade including restaurants had it long enough – the gravy train should stop and everything should normalise . If their prices weren’t so over the top , they would see more staying and dining.
@Mike Ryan: restaurants have the highest rate of bankruptcy out of any business, by a good bit too….its the taxes and operating costs that are astronomical, mainly thanks to the government.
@Dere: Restaurants have the highest failure rate due to the competence of those who run such businesses.
And their greed.
@ItWasLikeThatWhenIGotHere: lol yeah right…..way to generalize there and I’m sure you have ample evidence of this.
@Dere: ?? IF your business isn’t turning a profit…… That’s on YOU. Why on earth should the taxpayer be cajolled into giving VAT incentives to unviable or poorly run businesses ( whether in the hospitality industry or elsewhere).
@Buster Lawless: It’s an over saturated market.
Have seen steaks on menu’s recently going for just under 40 euro (39.50 euro). Seems a bit pricey for a slice of meat that one can buy for well under 10 euro and that is not bought in bulk as restaurants would do. Potatoes were extra.
Throw in a drop of Chateaux Rot-Gut at 10 euro a glass and it will be enough to give one a serious heartburn when they get the bill.
Hospitality rip-off? Most certainly.
@George Vladisavljevic: Just back from Spain. Where everything is so much cheaper. Went to a nice well to do restaurant one night. Myself & herself had starters, both had fillet steak with all the trimmings. I had desert & 2 beers. She had 2 wines. Got the bill. €78.90. The food was absolutely amazing. You wouldn’t even get out for a drink in this country for that price.
@John Barry: Could not agree with you more. I do agree that people say it is relative to cost of living and wages but there is a limit.
I also wonder how they measure a glass of wine they serve. In some countries (Germany for one), there is an actual line on the glass that gives the actual measure. The liquid has to be up to that line. Same goes for beer, the liquid has to be up to the line, the head can be above, but the liquid has to be up to the line..
Some glasses of wine being served at a very high price, for a tiny measure, is criminal.
@John Barry: so true, we did ( a chunk) of the Camino walk in N Spain in March….. Most evenings dinner (3 courses) + the bottle of quality red …… Wouldn’t exceed €60
@John Barry:
I can get that for the same price here in a good restaurant in Cork.. A bar manager here gets about 40K, the same job in Spain pays 18K. That’s why hospitality is more expensive here. I’m not saying there isn’t gouging going on but I’d rather spend €78.90 in a restaurant when I earn 40K than spend €78.90 when I earn 18K.
@Paul O Connor: but for 78.90 in ireland you would get a lot lot less on your plate plus I could say the service in ireland is probably not as good as Spain.
@John Barry:
Eating out got so dear.
Had a rare meal out recently for 2.
2 portions garlic mushrooms .(7 mushrooms each)
1 sirloin steak.chips included.
1 scampi Inc chips.
2 vodkas and mixers.
E 108.
They never passed it back to customers…..
For once I agree with the Department. Any time the hospitality sector get reductions in tax, they don’t pass it on to the customer and the staff’s wages don’t get increased. Actually they are one of the greediest sectors!!
@Ollie Fitzpatrick: Fully agree with you Ollie.
@Ger Whelan: Thanks Ger, they are giving the reductions to the wrong people. Give it to us and perhaps we will spend more!!
Hospitality makes enough money as it is!
The government is right not to cut the VAT for hotels as they should be classed as a cartel now. Over the past few year’s accommodation prices have gone through the roof in Ireland.
The Government have taken over a large percentage of Hotels, Guest Houses and B&B’s for asylum seekers which had the knock on affect of leaving tourists and those wishing to take short breaks in different parts of the country to compete for the limited supply of accommodation.
With so many Concerts, Sporting Events, Festival’s and so on Hotels are nearly at
100% occupancy and they are milking the shortage for all it’s worth.
Unjustified and expensive:
Rte play, Childrens hospital in wrong location, Dail printer, Healy Raes phone bill….
Please feel free to add to list
@Padraic O’ Sullivan: The last time the Vat on the hospitality industry was decreased did the hospitality industry pass that decrease onto the customer?. No they didn’t did they?. When the Vat was restored they did they pass the increase onto the customer? Yes they did didn’t they. So why reduce it again when it doesn’t benefit anyone but the business owners?
The hospitality sector is strangling itself with the prices they are charging. No doubt Ireland is an expensive place to do business but hotel, restaurant and pub prices are extortionate.
There was a time when herself and I would have a few weekend breaks in hotels around the country. But not anymore. Very little value to be had in hotels and restaurants now.
Greedy cartel like industry.
Will cost €750m eh? Same amount as the bailout for RTE. Says where the Governments priorities lie.
Tourism now dead or dying all along the entire Western Seaboard thanks to Roderick O Gorman. Multi Millionaires being made out of Barristers & cowboy Developers who have contacts with certain politicians. A sector that took decades to develop wiped out in two years by Roderic, instead we have towns now with fewer tourists, less jobs, double the population & services under extreme pressure. Putting hotels back into use for tourists rather than refugees is the first remedial step. Most hotels in our area are now full of Immigrants or Ukrainians.
It was cut during Covid so the business could survive what was the point of that there seemed to be a large volume of people not going out, I can assume at that time there was no change to exuberant prices, which the prices are way over the top to eat it out, increase the vat more I say if it really gets over the top for them it’s their turn to see how to see how their patrons were not happy at all.
It does not matter what business it is the overhead costs in Ireland are crazy and the paper work at the end of year you could write War and Peace a few times over , All the goverment does is hammer small business while multi nationals get everything and pay 1% if they paid 15% the take would be alot more than the crumbs that they give
Way too expensive lots families cant afford dinnner out or even coffee and couple hot chocolate. How can justifie nearly 5 euro for hot drink . 6 euro for a pint out . Rip off Ireland. Why lots people go abroad to spain
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