Budget 2018 is not the time for any increase to 9% VAT rate
Aug 3, 2017
by Susan McDermott, Media and Communications Executive, Chambers Ireland
The reduced VAT rate for the tourism and hospitality sector was first introduced by former Minister for Finance, Michael Noonan, in Budget 2011 on a temporary basis. Reducing the rate from 13.5% to 9% was considered at that point to be a necessary support for the sector which was struggling during the economic crisis. It gave a much needed boost, allowing businesses in the tourism and hospitality industry to increase employment. The Restaurants Association of Ireland’s research shows that over 30, 000 jobs have been created in the tourism and hospitality sector since 2011.
An important aspect of these jobs is that much of the increased employment in this sector is based in rural parts of Ireland, where alternative employment is not readily available. While restaurants and hotels in the capital may not be as dependent on the reduced rate to keep the doors open, tourism operators in regional parts of Ireland are much more reliant on the rate.
The importance of the 9% VAT rate has increased in light of Brexit and the challenges that this imposes on the Irish tourism sector. In a recent survey the Irish Chamber Network has identified the potential negative impacts on tourism as a top three concern ahead of Brexit.Brexit will impact tourism through currency volatility and potential reduction in visitor numbers from the UK.
Recent reports from Dublin Airport highlighted that numbers of British people travelling to the State’s biggest airports have dropped significantly in recent months. Official figures quoted are that the 42% of tourists to Ireland and 44% of business travellers to the Republic are from Britain.
Recent media speculation was that Government was considering an increase of this rate in Budget 2018 to generate revenue. The Minister for Finance, Paschal Donohoe, had indicated that increasing the rate would generate €600 million that could be spent elsewhere in the economy. Following the Government announcement of its intention to increase the National Minimum Wage by 30c in line with the recommendation of the Low Pay Commission an increase to the 9% would pose a double whammy to businesses operating the tourism and hospitality sector, which also suffers from seasonality challenge.
In the days following the National Minimum Wage announcement the Irish Times reported that Minister Donohoe has played down the prospect of abolishing the 9% VAT rate, citing concerns over the impact of Brexit.
What do we propose?
Ian Talbot, Chief Executive of Chambers Ireland, recently raised the importance of the 9% VAT rate at the National Economic Dialogue in Dublin Castle in response to calls from ICTU to increase the rate. Ian outlined how important the 9% rate is for employment and for the competitiveness of the tourism industry. This is more important than ever in light of coming increases to the National Minimum Wage and the impact of Brexit challenges, which could drastically affect the sector.
The Chambers Ireland Pre Budget 2018 Submission recommends that Government:
- Retail the 9% VAT rate as an important support to help combat Brexit challenges and as a support for regional and rural employment in the tourism and hospitality sector
Benefits to the economy?
In a time of great uncertainty for the tourism sector, the retention of the 9% VAT rate can help ease concerns and give a degree of certainty to businesses operating in the tourism and hospitality sector so that they can plan ahead for 2018.
This VAT rate will continue to provide an important support for the rural economy where in certain locations employment can be dependent on the success of the tourism and hospitality. Retaining the 9% VAT rate will help to maintain the cost competitiveness of businesses operating in this sector.
The 9% VAT rate also helps Ireland international competitiveness rankings as it is one area of taxation where we show a competitive advantage to many countries in the EU.
You can read the Chambers Ireland Pre Budget 2018 Submission online here