Tourism’s 9% VAT coming to an end, but Varadkar leaves door ajar for possible extension

Budget 2023: Although VAT rate will revert to 13.5% in March, Tánaiste suggests this could yet be reviewed

The Tánaiste and Minister for Business Leo Varadkar has left the door open for the possible retention of the tourism sector’s special 9 per cent VAT rate, despite Minister for Finance Paschal Donohoe saying in his budget speech that it will revert as planned to 13.5 per cent at the end of next February.

Tourism industry representatives say they will continue to push for an extension of the lower rate, after the Government resisted a fierce industry lobbying campaign in recent weeks for a budget extension.

Mr Donohoe had hinted in recent weeks that he was not prepared to extend the 9 per cent rate. He cited accusations of profiteering by some hotels that charged high prices to consumers over the summer.

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Speaking after the budget at a press conference for the Department of Enterprise, Mr Varadkar said the 9 per cent tourism rate was just one of several lowered taxes, alongside reduced fuel excise and VAT on gas and electricity, that are due to revert to higher rates in coming months. He said it is the decision of the Government that they will all go back up by March.

“[But] we will have to review the situation before then and see how we are doing in terms of the public finances, in terms of the economy and employment,” said Mr Varadkar.

The Irish Tourism Industry Confederation (ITIC), the sector’s main lobbying group, said it was a “significant disappointment” that the 9 per cent VAT measure was not extended in the budget.

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“To hike it by 50 per cent as planned early next year will simply make us less competitive, will fuel inflation, and damage demand,” said Eoghan O’Mara Walsh, the chief executive of ITIC.

The Restaurants Association of Ireland (RAI) also expressed its disappointment with the move to let the VAT rate go back up to 13.5 per cent, and confirmed it will seek a review of the decision before the end of February.

“The issue is not off the agenda yet,” said Adrian Cummins, the chief executive of the RAI. He said he had told the Government before the budget that there was no need to make a final decision on the rate in the budget, as it is not yet certain what the economic situation will be by then.

Tom Randles, a Killarney hotelier whose family owns the Dromhall and Randles hotels in the tourism hotspot, said he was “very disappointed” that a decision was not taken in the budget to secure the rate at 9 per cent: “Now, as well as having one of the highest [alcohol] excise rates in Europe, we will have one of the highest tourism VAT rates.”

In his budget speech, Mr Donohoe said the Government would continue to support the night-time economy, including musicians and performers, “and not just the hospitality industry”. He announced a 50 per cent cut — to €55 — in the cost of a late-night exemption, for which entertainment venues serving alcohol must apply when opening late.

Mark Paul

Mark Paul

Mark Paul is Business Affairs Correspondent of The Irish Times. He also writes the Caveat column