The Republic of Ireland's recent announcement increasing the VAT on its hospitality and tourism sector from 9% to 13.5% has created waves of debate. This decision catapults the Republic of Ireland to having Europe's third-highest tourism VAT rate, causing a stir among stakeholders.
Ireland's tourism sector is the country's largest employer, making the VAT return to 13.5% implications even more profound. The immediate and universal criticism from industry constituents highlights the concern that this increase could lead to significant job losses and shutter the doors of businesses already on the brink.
The hotel sector, particularly smaller establishments, fears this hike might be their undoing. Denyse Campbell, President of the Irish Hotels Federation (IHF), shed light on the issue. She suggested that businesses in rural areas and those relying heavily on food and beverage sales, which typically have tight margins, are expected to bear the brunt. Campbell highlighted the inflationary implications of the increase, which could dent consumer spending decisions adversely.
Meanwhile, the restaurant industry isn't far behind in expressing its concerns. The Restaurants Association of Ireland (RAI) believes only food-related businesses should benefit from the reduced VAT rate. Adrian Cummins, Chief Executive of the RAI, attributes the recent struggle of many in the industry to a combination of factors, such as poor weather and escalating costs. He issued a stark warning, suggesting that the VAT increase could be the "final nail in the coffin" for numerous small-scale eateries.
On the other hand, the Vintners Federation of Ireland (VFI) criticised the hike as a direct 'tax on the consumer.' John Clendennen, President of the VFI, articulated the sentiments of many, stating that the increase is a blow to consumers already contending with the escalating cost of living. He underscored how the VAT rate was a lifeline for many pubs, especially those offering food, in light of soaring operational costs.
But what exactly is changing with this decision? From 1 September 2023, VAT applicable to specific goods and services in the tourism and hospitality sector will experience an increase from 9% to 13.5%. This includes a broad spectrum, from food and beverages in various establishments to admissions in cinemas, museums, hotel accommodations, and even hairdressing services. Introduced as a temporary relief measure on 1 November 2020 in response to the challenges induced by the COVID-19 pandemic, the 9% VAT rate saw multiple extensions. However, the government is clear: there will be no more extensions beyond 31 August 2023.
Amidst this backdrop, the government has been steadfast in its stance. Tourism Minister Catherine Martin confirmed that there is no room for reconsideration on restoring the VAT rate. She pointed to the sector's robust recovery, with visitor numbers almost returning to pre-pandemic levels, as a justification for the government's stance. However, Eoghan O'Meara Walsh, CEO of the Irish Tourism Industry Confederation, begged to differ, viewing the rate increase as a mistake poised to fan the flames of inflation.