Increased VAT rate ‘nail in the coffin’ for small businesses, says restaurants’ group

The Restaurants Association of Ireland (RAI) has warned that the return to a 13.5 per cent hospitality VAT rate will be the “final nail in the coffin” for many small businesses.

The VAT rate for tourism and hospitality was cut from 13.5 per cent to 9 per cent during the pandemic to protect businesses affected by public health restrictions.

Having been extended on a number of occasions, the 9 per cent rate is due to revert to 13.5 per cent on Friday, September 1st.

The RAI has described the move to increase the 9 per cent VAT rate as of midnight on Thursday as “nonsensical”, saying it will close the doors of many low-margin restaurants, cafes and food-led pubs across the State.

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The association has said it will also add to consumer inflation, and will move the Republic to the second highest hospitality VAT rate within the EU, eroding competitiveness as a tourist destination.

Chief executive of the RAI Adrian Cummins said the increase “is the final nail in the coffin for many small cafes, restaurants and food-led pubs”.

“The increase is wrong at a time when the country needs to reduce inflation, a VAT increase only adds to inflation. Government need to restore the 9 per cent VAT for food-related hospitality businesses in Budget 2024, and we will be making the case for this when we meet with the Minister for Finance next week,” he said.

The Department of Finance said last week there is no plan to extend the 9 per cent VAT rate.

In a statement to The Irish Times on Thursday, a spokeswoman for the department said the “final extension” of the 9 per cent VAT rate until Friday struck a balance between the cost to public finances, and the provision of support to sectors benefiting from the lowered rate.

“The VAT reduction has been in place since November 2020 at a gross cost to date of €1.2 billion, which represents a very significant support by Government for a vital sector of the economy. It was originally put in place during the height of the Covid period and the associated difficulties for the hospitality sector,” she said.

She highlighted other measures that have been provided to support businesses, including those in the hospitality sector, such as the Temporary Business Energy Support scheme, which ran from September 1st, 2022 to May 31st, 2023 and reductions in excise duty on petrol and diesel.