Donohoe confirms VAT to rise 2pc at end of March

VAT is to go back up to 23pc from the end of next month, Finance Minister Paschal Donohoe has announced.

In a blow to consumers and retailers alike, the hike – from the current rate of 21pc – will hit about half of all retail and other transactions in the State.

It means would-be purchasers of expensive items have about seven weeks left to take advantage of the continuing lower rate.

A “temporary” reduction in the standard VAT rate from 23pc to 21pc came into effect in September 2020.

That reduction was announced as part of the July stimulus package, and was indicated to last for six months.

Asked at the Budgetary Oversight Committee yesterday afternoon whether the reduced rate could continue because business and retail remained on its knees, Mr Donohoe firmly ruled out such an approach.

“In relation to the standard rate of VAT, it is my intention that the rate go back up to its original rate at the end of the planned period,” he said.

However, he said the special rate for the hospitality and service sector will continue until the end of this year.

“We made the original decision in relation to the standard rate for VAT to support retailers at a time of great difficulty,” Mr Donohoe said.

“We’ve now launched the series of support schemes that are providing additional support to that part of our economy.”

Mr Donohoe was responding to a question from Sinn Féin spokesperson on finance Pearse Doherty, who asked whether it was his intention to allow for the VAT decrease to 21pc to lapse at the end of March.

He suggested it could be extended “given the environment whereby many businesses were not be able to avail of that reduction”.

The increase will see an extra €2 in tax on every €100 spent on goods and services in the State that attract the standard rate of VAT.

Public Expenditure Minister Michael McGrath said there was a lot of “pent-up demand” for goods and services as a result of the large increase in savings as a result of the Covid lockdowns.

Moving out of the pandemic was inextricably linked to economic recovery, Mr McGrath added.