Paschal Donohoe, the Minister for Finance, is resisting lobbying efforts from representatives of the tourism industry to further extend until the end of 2022 the sector's special 9 per cent VAT rate.
The Irish Tourism Industry Confederation (Itic) last week wrote to the Minister seeking an extension of at least four months to the sunset clause on the rate, which was introduced last October in Budget 2021 to aid the sector's recovery from the impact of the pandemic.
In his Budget 2022 speech this month, Mr Donohoe confirmed the special rate would finish at the end of August next year, reverting to 13.5 per cent and effectively taking 4.5 percentage points from the profit margins of tourism operators.
Last week, Itic wrote to the Minister to express “disappointment and frustration” that the rate was going back up next September. The industry’s umbrella lobby group had campaigned prior to the budget for the rate to be extended to 2025, but subsequently sought a shorter extension to be agreed after the budget, but before publication of the Finance Bill.
In the letter, Itic chief executive Eoghan O'Mara Walsh said an extension to the end of the financial year in 2022 would have a "modest" cost to the State in tax foregone but would help "the sector stabilise after a particularly difficult pandemic period". The Department of Finance has previously estimated that the preferential rate would cost about €336 million for a full year.
In response to queries from The Irish Times, the department said there is “no change” planned to the August 2022 end date.
Itic, along with several other business lobby groups, is due to meet the Tánaiste Leo Varadkar, on Friday, when it will renew its push for an extension.
“We will still be making the case. It has merit,” said Mr O’Mara Walsh. “Until it is in black and white in the Finance Bill, we will fight it. Raising the VAT rate in the middle of a financial year will slow down recovery.”
The Government previously cut the sector’s VAT rate from 13.5 per cent to 9 per cent in 2011 but raised it again in Budget 2019 to fund spending, after a departmental report said it had become a “deadweight”. Trade union groups, which are often critical of the sector, which has a low rate of union membership, had also campaigned for it to be raised in Budget 2019.