The lower rate 9 per cent VAT introduced to support the tourism and hospitality sectors during the Covid pandemic will end from March 1st next year, reverting to the 13.5 per cent rate.
The move was confirmed in Tuesday's Budget speech by Minister for Finance Paschal Donohoe who said the lower rate will apply until February 28th 2023.
The 9 per cent rate of VAT for the Tourism and Hospitality industries was reintroduced in Budget 2021 and was due to run until December 31st, 2021. It was initially extended in last year’s Budget and again in May 2022.
An extension of the 9 per cent rate was not recommended by the Tax Strategy Group papers released during the summer, while the Commission on Taxation report has noted a preference for moving away from the reduced rates in an effort to broaden the VAT base.
Conor Walsh, Tax Partner, Deloitte said: “The decision by the Minister to not extend this 9 per cent rate beyond February 28th, 2023 will of course be disappointing to businesses in an industry where price competitiveness is a core concern. Many businesses operating in this industry are facing steep competition, with inflationary pressures mounting. Where future changes are envisaged, these should be balanced against the likely impact to small and medium-sized businesses in the coming years.”
The Vintners’ Federation of Ireland (VFI) said the decision not to extend the special hospitality VAT rate "will be a devastating blow to publicans serving food and will have massive consequences for the trade throughout next year".
VFI chief executive, Paul Clancy said: "The increase in the hospitality VAT rate is extremely disappointing for our members who serve food. At a time when inflation is running rampant and the cost of doing business is going through the roof our members will have to increase prices for customers who are already shell-shocked from the effects of the cost of living crisis. There is a genuine fear in the trade that when VAT reverts to 13.5 per cent next March many customers won’t be able to afford the price increases."
Adrian Cummins, chief executive of the Restaurants Association of Ireland said: "The 9 per cent VAT rate ending in February of next year will only increase costs for consumers and raises concern about Ireland’s competitiveness compared to our EU counterparts."
However, both groups welcomed the Temporary Business Energy Support Scheme (TBESS) which covers 40 per cent of the increase in electricity or gas bills, up to a maximum of €10,000 per month per business. Mr Cummins said: "the devil will be in the detail on this and we are calling for Revenue to open and administer the scheme immediately – some businesses are already struggling to pay the bills coming in through their doors."
The VFI's Paul Clancy said the scheme would help mitigate soaring energy costs. "Our members are dealing with 300 per cent increases in electricity and gas costs, so it was essential Government introduced such a scheme given the genuine concern within the sector about the viability of trading during the winter months.
"While we welcome the scheme’s announcement, our members will be anxious to learn the full details about how they can access the scheme, so we are urging Government to publish registration requirements immediately. Publicans and small businesses need clarity and certainty today."