Special 9% VAT rate for hospitality set to be extended

The Government is set to extend the special nine per cent VAT rate for the hospitality sector beyond its current expiry date later this year.

It is expected that Minister for Finance Paschal Donohoe will update his cabinet colleagues on plans to extend the measure - on a time-limited basis - as soon as Tuesday's Cabinet meeting. The extension is anticipated to cost between €200 million and €250 million.

The measure, which was introduced in 2020 during the Covid pandemic following intensive lobbying from the restaurant, hospitality and tourism industries, was due to expire at the end of August, having already been extended in last year’s budget.

Three sources with knowledge of the situation said Mr Donohoe was expected to bring forward plans to Cabinet on the measure after it was discussed at a meeting of coalition party leaders on Monday evening.

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However, it is expected that such an extension would be time-limited, and may only be in place until the new year .

Some sources suggested they would be “optimistic” that it would extend into 2023, but not through the year.

Replies to recent parliamentary questions stated that extending the lower rate until the end of 2023 would cost in the region of €500 million. A less lengthy extension would be cheaper.

A lower VAT rate for hospitality was among the measures introduced by the Fine Gael-Labour coalition during the austerity period, and proved politically volatile every time a government considered shelving it.

A cut to the VAT rate was initially resisted by the current coalition during its first intervention in the Covid-era economy, the so-called “July Jobs” stimulus package in the summer of 2020. But the Government introduced the measure in Budget 2021, before extending it again last year.

However, with a wave of insolvencies now feared in the wake of Covid-19 and the staggered withdrawal of pandemic-era supports, the Government and the Department of Finance is now open to extending it.

While previous extensions of the rate have been budget day measures, sources indicated provision could be made through an amendment to the Finance (Covid-19 and Miscellaneous Provisions) Bill currently making its way through the Oireachtas.

Minister for Tourism Catherine Martin last month told a hospitality conference that she was pressing for the reduced rate to be extended further - while noting that the issue was ultimately one for Mr Donohoe.

Elsewhere, Cabinet is set to consider technical matters that will allow Ireland receive grants under the European Union’s post-Covid recovery and resilience facility, while Minister for Justice Helen McEntee will seek cabinet support for two procedural memos on post-Brexit information sharing and EU regulations on insolvency proceedings. The annual report of the Shannon Group will also be considered, alongside several appointments of ambassadors to Ireland.