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Good news for tourism businesses - their 9% VAT rate is safe

The rate came under scrutiny earlier this year but businesses say it has been instrumental to the sector’s recovery.

25/07/2014. Dublin Tourists. Pictured tourists loo Source: Sam Boal/Photocall Ireland

THERE WAS A welcome announcement for tourism businesses in the Budget today – their 9% VAT rate, which had appeared to be under threat, was retained.

Finance Minister Michael Noonan today told the Dáil that the 9% rate for businesses involved in tourism would remain at that level. He has previously stated that the rate was reduced in 2011 from 13.5% to help reduce costs for the sector during a challenging time.

The government decided to retain the rate after the initial 2014 deadline “because the initiative had proved to be a major success, helping create over 15,000 new jobs at that time” he said in July this year.

There are 230,000 currently employed in the tourism sector across the country.

There was speculation about a change to this rate, as the ESRI in September questioned the need to retain it at 9%. Professor Alan Barrett told an Oireachtas committee “all tax incentives should be reviewed periodically to make sure they are still relevant”.

He said:

We don’t know if the tourism-related incentive introduced by the last government is still needed, but the case needs to be explored.

Noonan today noted that questions had been raised about the need for the rate to be kept at this level.

Though the economic rationale for maintaining this reduced rate may not be as strong today, I consider it would be prudent to retain the reduced rate in this year’s Budget. This will act as a buffer for the sector against the weakness in sterling which increases the cost of holidaying in Ireland for British tourists.

‘Instrumental’

The Irish Hotels Federation (IHF) welcomed the decision, describing the rate as “instrumental in the recovery of the tourism industry”.

“This measure has been the single most important fiscal initiative for Irish tourism in the last decade and we are pleased the government has retained the rate,” said the president of the IHF Joe Dolan.

It demonstrates that it has been highly effective in job creation and also acknowledges that we have a pro-tourism government who see the value the industry brings to every part of our country located on the periphery of Europe. The decision is a vote of confidence in the tourism industry at a time of uncertainty due to Brexit.

The Irish Tourist Industry Confederation also welcomed the move, pointing out that the rate allows Ireland to remain competitive in the post-Brexit uncertainty.

“Tourism is a long-term sustainable source of jobs in Ireland. Tourism can’t be offshored or outsourced. It is here to stay and has the potential to provide jobs in all parts of the country,” chief executive Eoghan O’Mara Walsh said.

However, he expressed disappointment that investment in tourism was not greater in the Budget.

It was good news too for restaurant owners who expressed a “cautious welcome” to the rate retention – and the decision not to increase excise duty on wine.

Adrian Cummins, chief executive of the Restaurants Association of Ireland (RAI) said the retention of the VAT rate is “crucial” for the sustainability of restaurants and for job creation in the sector.

Though he said the RAI was pleased to see no increase in excise duty on wine, he noted this duty is still the highest in Europe, with consumers paying 64% tax on a bottle of wine.

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