LAST UPDATE | 24 Jul 2025

GOVERNMENT HAS BEEN urged to “bite the bullet” and follow through with its election promises to cut the VAT rate for the hospitality sector.

Despite election promises and ministerial pronouncements, government this week has been signalling that a cut to the VAT rate for the hospitality sector may not go ahead in next year’s Budget. 

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.

Tánaiste and Fine Gael leader Simon Harris said the government had made a “solemn” commitment in the election to reduce the VAT rate for the hospitality sector to 9%, but this week the government has been sending mixed signals on how it will proceed. 

Speaking to RTÉ Radio 1 this morning, junior justice minister Niall Collins said the VAT cut was not a “done deal”.

The Fianna Fáil TD said it is his personal preference to have targeted interventions across a number of sectors, instead of a broad cut to VAT in hospitality. 

Collins added that it would be an “enormous cost in one jump” to move from 13.5% to 9% and stressed that it was “simply not the case” that two thirds of the tax package in this year’s Budget would be used for the hospitality VAT reduction. 

Speaking to The Journal, CEO of the Restaurants Association of Ireland Adrian Cummins said the promise, which features in the Programme for Government, must be followed through.

“It seems to me now, in the last 24 hours, someone somewhere is trying to put a pause on the VAT reduction and trying to scupper it,” he said, adding that pausing the measure would make Ireland out of line with similar rates in the rest of Europe.

VAT reduction would ‘fix a broken system’

Cummins said: “The Government needs to understand that the business is broken and a reduction in the VAT rate would fix that.”

He added that targeted measures, such as grants, have been tried in the past and failed, for various reasons. He reasoned that reducing the VAT rate would make food-led businesses less reliant on annual support packages in each year’s budget.

Earlier this week, Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers published the Summer Economic Statement, which sets out the parameters for the forthcoming Budget. 

At the press conference on Tuesday, Donohoe said it would cost between €950mn to €1bn to lower the VAT rate for food and accommodation hospitality for one full year.  This would equate to two-thirds of the €1.5bn tax package available in this year’s Budget.

He told reporters that he has always been clear that if the government greenlights this measure there will need to be “trade-offs” in terms of other measures that they won’t be delivered.  

“The exact component of what the tax package will be and the other tax measures that will be in it, I can’t answer that question until Budget day,” Donohoe said. 

Cummins called into question the total amount estimated by the Department of Finance, claiming that the €1bn figure is reflective of the hospitality sector when accommodation is included.

He said that reducing VAT rates for food-led businesses, such as restaurants and café’s, would only amount to roughly €545m of the Government’s incoming tax package, under the Restaurant Association of Ireland’s estimates.

“Yesterday, the Department of Finance threw the kitchen sink, the bedroom and the bathroom at that figure,” he said.

Restaurants ‘expect’ ministers to fulfil promises

Speaking last month, Donohoe said a cut in the VAT rate for hospitality “is a shared priority across government”. Minister for Enterprise Peter Burke, meanwhile, defended the plans to cut the VAT rate yesterday. 

He stressed the importance of the hospitality sector to the economy and the 200,000 people who are employed in it, arguing that the VAT reduction is a “jobs measure” that will sustain employment in that sector. 

“It is a viability measure, they are under significant pressure,” Burke said, noting that regulatory requirements like sick pay and wage improvements have reduced margins in the sector.

Cummins said: “When push comes to shove, there’s a hesitancy there to deliver [...] but our members and businesses expect them to deliver.”

Many in the industry have pointed to the VAT rate being reinstated to 13.5% after the Covid-19 pandemic as a significant strain on their businesses.

However, others, like trade union SIPTU, argue that a reduction in the VAT rate equates to the government placing the interests of business above those of workers. 

SIPTU Deputy General Secretary, Greg Ennis argued that the government has also made commitments to workers to improve things like sick pay and to move further towards a living wage — moves they have since shelved.

“Without the Government reaffirming and meeting its commitments for improvements for workers in the private sector and a cost-of-living package, the cut in the VAT rate in Budget 2026 will amount to another kick in the teeth to them and their families,” said Ennis. 

He added that the government has “gone too far” in placing the interests of business above those of workers.