Government considered scrapping lower Vat rate for hotels

High hotel prices in Dublin are “not warranting” the reduced rate of Vat that the tourism sector currently pays, Department of Finance documents outline.

Plans drawn up before the budget in October looked at scrapping the reduced 9 per cent Vat rate for hotel accommodation due to high prices, but keeping the rate for the rest of the hospitality sector.

The documents state that raising Vat on hotel accommodation from 9 per cent back to 13.5 per cent would address “the issue of high hotel prices not warranting” the lower rate, while maintaining the rate for other tourist services.

Analysis carried out in the run-up to the budget found the 9 per cent tax on hotel rooms was among the lowest in Europe, and hotel prices in Dublin were the 10th most expensive in the world out of countries surveyed.

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The internal analysis found the average price of a hotel room in Dublin was €147 per night at the end of 2016.

The department estimated €491 million in revenue would be brought in if the Vat rate was brought back to 13.5 per cent level across the hospitality sector, according to documents obtained under the Freedom of Information Act.

The tax break is estimated to have cost the State €2.2 billion since it was introduced in 2011.

Job creation

The hospitality sector has strongly opposed any moves to end the Vat reduction. A spokesman for the Irish Hotels Federation said two-thirds of total hotel rooms were outside of Dublin.

“The 9 per cent Vat rate continues to be one of the most successful job-creation initiatives in modern times, with its positive impact on tourism exceeding expectations,” he said.

Department officials considered increasing the Vat rate on the hotel and catering sector to pay for a tax cut on residential construction from 13.5 to 9 per cent, to help encourage housing supply.

Another mooted option was to bring all services currently on the 9 per cent Vat rate up to 13.5 per cent, apart from print newspapers, to pay for the tax cut while “maintaining the support of the print newspaper sector”.

Newsbrands, a group representing print newspapers (including The Irish Times), has been engaged in a lobbying campaign for a further reduction in Vat from the current 9 per cent rate, due to the funding challenges in the media landscape.

In the event, the Vat rate on the hospitality sector was not altered, and no tax break for developers was introduced in the budget.