Transport

VAT cuts are for businesses – consumers will still pay the same

Publicans and restaurateurs will pocket any VAT reduction to keep themselves afloat

Customers are not staying away because drink is too expensive. Photograph: iStock

Sat Jul 4 2020 - 06:12

Anti-drink campaigners were quick out of the blocks this week to denounce tax cut campaigns by parts of the hospitality industry. Alcohol Action Ireland, an advocacy group, described calls by publicans and restaurateurs for alcohol VAT cuts to weather the crisis as "irresponsible". It is likely, however, that the group may have misinterpreted the intention of the VAT-cut proposals.

The two publican lobby groups, the Licensed Vintners Association and Vintners Federation of Ireland, have banded together with manufacturers' group Drinks Industry Ireland to call for a temporary cut in VAT charged on pub drink sales from 23 per cent to 9 per cent.

Meanwhile, the Restaurants Association of Ireland this week called for a 5 per cent “composite” VAT rate on alcohol and food sold together as meals, which would benefit its gastropub members.

Alcohol Action Ireland subsequently wrote to The Irish Times to denounce what it viewed as calls to “reduce the cost of alcohol and further fuel an already flaming public health crisis of alcohol harm”.

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It added: “Reducing alcohol taxes would simply stimulate an increase of alcohol use, which evidence demonstrates will cause further harm.”

However, the calls for VAT cuts are not intended by the industry to allow for publicans or restaurateurs to cut the price of drink to tempt more consumers. Price is not the issue. Customers are not staying away because drink is too expensive. They are absent because of social distancing, causing huge losses.

It is the intention of publicans and restaurateurs to pocket any VAT reduction to repair their battered margins, while keeping prices for consumers the same. This is what happened in 2011 when the incoming Fine Gael-led administration cut tourism VAT to 9 per cent. It was a highly targeted indirect bailout of the sector, adding 4.5 percentage points straight to most operators’ bottom lines.

The Government is coming under increasing pressure to repeat the trick in 2020 to prevent a wave of insolvencies.

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