Our cut-rate tourism VAT to stay, despite big hotels ‘jacking up prices’

THE 9% special hospitality VAT rate will likely be retained this year, but Finance Department sources last night warned it is on the way to being phased out.

Senior department figures said the scheme, which is applied to the tourist and hospitality sectors, may be needed after Britain departs the EU.

One department source said: ‘It would look strange if we got rid of it overnight in this Budget.

‘Especially since ministers have cited its importance to the tourist industry in the post-Brexit environment.’

However, there is anger within the Government about what some see as the abuse of the measure by some large hotels in the capital.

‘This measure was introduced with the intention of helping small businesses and particularly those in rural Ireland to keep their prices competitive,’ said one minister.

‘But when you see large hotels, particularly in Dublin, jacking up their prices, it is very galling,’ they said.

Government figures pointed out that the measure will not be retained in the future.

‘The process of phasing it out may even begin in this Budget. It could even be removed from some sectors,’ said an official. ‘But it will be largely retained for now.’

Speaking before an Oireachtas Committee in June, Finance Minister Paschal Donohoe said €600m would be generated if the rate were returned to 13.5%. But he indicated the increased rate would generate a number of other economic effects.

Mr Donohoe insisted no decision had been made on the tax measures, but understood the concerns of those in the sector. It cost a significant amount to retain that measure, the minister told members, but there would have to be other proposals to put in place in its absence.

The 9% VAT rate for tourism-related activities such as restaurants, hotels and cinemas was introduced to encourage growth and employment in the sector. Hospitality groups have consistently lobbied for its retention.