The more the special 9% tourism VAT rate costs, the better

The more tax that is foregone on the measure, the better the recovery must be

Tourism VAT is due to go back to the higher rate on September 1st, 2022, after the Government agreed in the summer to push out the reversion by a further eight months. Photograph: iStock

Tourism VAT is due to go back to the higher rate on September 1st, 2022, after the Government agreed in the summer to push out the reversion by a further eight months. Photograph: iStock

 

The Government is coming under intense pressure from the tourism industry to further extend in next week’s budget the sector’s preferential 9 per cent rate of VAT, which was cut from 13.5 per cent a year ago to help tourism operators keep their heads above the stormy waters of the pandemic.

Tourism VAT is due to go back to the higher rate on September 1st, 2022, after the Government agreed in the summer to push out the reversion by a further eight months. The blanket measure is known to be loathed by mandarins in the Department of Finance, and also by trade unionists who resent any special help for a sector that has low wages and even lower levels of union representation and member fees.

But the Government may find it hard to resist the pressure to extend the special rate, after the hammering that the industry took when travel was effectively banned as part of the public health response to coronavirus. The last time the rate was hiked, in Budget 2019, it caused fury in the sector.

When the 9 per cent rate was brought in a year ago, it was estimated that it would cost about €401 million in tax foregone by the end of 2021, or about €336 million in a full year. The true cost, however, will be far lower as most of the sector was effectively shut for the first six months of the year under the restrictions. As there was little trade, there was little tax uplift for operators.

Philip Nolan, VAT partner at financial advisory firm BDO Ireland, estimates that the extension to next September will cost about €250 million in tax foregone. The Government has little room to move on tax cuts and it would dearly love to get away with capping the cost.

There is another way of looking at it, however: the higher the cost of the VAT break, the better. The more tax that is foregone, the more buoyant the tourism sector must be to bring this about, and the more embedded the recovery will have become.

Business Today

Get the latest business news and commentarySIGN UP HERE
The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.