Minister wanted tourism’s VAT rate kept at 9% and says decision to raise it will face ‘review’

Tourism industry hopes a change in taoiseach and minister for finance at the end of the year will preface a decision to stop the rate reverting up to 13.5%

Minister for Tourism Catherine Martin wanted the sector’s special low 9 per cent VAT rate retained in this week’s budget, and the Government’s decision not to announce an extension beyond the end of next February will face a review.

Speaking at her department’s post-budget press conference, Ms Martin said she would continue to meet lobbyists for the tourism industry who want the sector’s lower VAT rate retained, and not to revert to 13.5 per cent as planned.

The Department of Finance under Paschal Donohoe has long wanted the VAT stimulus for the tourism sector to be scrapped, but the measure is believed to still have some support among several other Cabinet members.

In carefully worded comments in his budget speech on Tuesday, Mr Donohoe did not actually specify that tourism’s 9 per cent rate would conclude at the end of February, only that it would continue until then. Barely an hour after Mr Donohoe finished his speech, the Tánaiste and soon-to-be taoiseach again, Leo Varadkar, appeared to leave the door ajar for a possible extension. He said the decision to raise the rate to 13.5 per cent once again “would have to be reviewed” closer to the end of February.

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Speaking on Wednesday, Ms Martin said she agreed with Mr Varadkar. She said other business support measures, such as help with energy bills, would continue until “at least the end of February”, depending on whether they were needed for longer, and she suggested the rate should be treated similarly.

“We will have to keep it under review,” she said. She also said she would retain “constant engagement” with representatives of the tourism industry.

Industry sources are holding out hope that when Mr Varadkar retakes the position of taoiseach in December and Fianna Fáil’s Michael McGrath takes over as minister for finance, the tourism sector might get a more sympathetic hearing over the 9 per cent rate.

Eoghan O’Mara Walsh, chief executive of the Irish Tourism Industry Confederation, said it would continue to lobby for the extension of the lower VAT rate and would “actively engage” with Cabinet Ministers.

The tourism sector had its VAT rate reduced from 13.5 per cent to 9 per cent for close to 10 of the past 11½ years. The lower rate was originally introduced as a stimulus measure during the last major recession in 2011, when Mr Varadkar was the minister for transport and tourism. Mr Donohoe scrapped the lower rate in 2019, but reintroduced it in 2020 when the sector came under severe pressure in the pandemic.

Some Government politicians, including Mr Donohoe, suggested in recent months the higher rate should be restored because hotels, in particular, had charged customers very high prices during the summer, when the sector rebounded after Covid.

Mark Paul

Mark Paul

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