Hospitality VAT will not be lowered, says Tánaiste

THE VAT rate for tourism and hospitality will not be lowered, Tánaiste Micheál Martin has said.

However, he said the Government will be making changes to the warehousing of tax debt brought in during Covid to ensure more ‘flexibility’ for business having to pay back the debt now.

The news comes as the Restaurants Association of Ireland met with Enterprise Minister Simon

‘Hospitality grew significantly’

Coveney after 280 food businesses closed in the past six months, with warnings that more will follow due to the increased 13.5% VAT rate.

The Tánaiste said yesterday that ‘VAT will not change this year’, and noted that hospitality ‘significantly grew’ in 2023.

He added: ‘We just had a budget in October. If you were to change the VAT rate again back down, you’re looking at about €750million. That was brought in at the time of Covid, and it was brought in previously after the economic crash and so on, to try and generate activity in hospitality.’

A temporary 9% VAT rate for tourism and hospitality was introduced in 2020 in response to the pandemic.

The expiry date for the rate cut was extended several times, but it was increased to 13.5% in September last year amid calls from the industry, particularly food and tourism businesses, to keep the reduced rate.

Despite pressure to reintroduce the reduced rate in the budget a month later, the Government kept it at 13.5%, saying it would examine splitting the VAT rates for hotels and restaurants, so they could be charged separate rates.

Mr Martin said: ‘I think we are wanting to look at, however, the tax situation in terms of what transpired in relation to Covid and the warehousing of tax.’

Warehousing of tax debt assists businesses who experienced cash-flow and trading difficulties during the pandemic.

Under the scheme, businesses could defer paying some of their tax liabilities until they were in a better position financially to deal with the debt.

From January 1 this year, 3% interest is being charged on the remainder of the debt, and businesses have until May to agree a payment plan with Revenue.

Mr Martin said Finance Minister Michael McGrath will have proposals in the next week to bring ‘absolute flexibility’ to the scheme by potentially extending the term of repayment.

‘It will be treated separately from people’s current tax obligations and also in terms of the interest rate that applies to that warehousing tax debt.

‘We want to keep viable businesses going, and if that warehousing tax issue is an issue, then we are determined to improve that to give people flexibility in the repayment of that and to allow them room to breathe,’ the Tánaiste said.

‘We want to keep businesses going’