View from Dublin: rise in Vat rates raises the ques­tion of in­equal­i­ties

Belfast Telegraph - Business Telegraph - - News - BY RICHARD CUR­RAN

From Tues­day, the price of a meal or a cof­fee in the Repub­lic should be go­ing up a lit­tle as the old 9% Vat rate, in place for sev­eral years, ends as the full 13.5% rate kicks in.

The Restau­rants As­so­ci­a­tion of Ire­land has said the de­ci­sion in last Oc­to­ber’s bud­get was in­cor­rect and will end up cost­ing jobs this year.

It is hard not to have some sym­pa­thy for the plight of the sec­tor. Yes, it is op­er­at­ing in a boom­ing econ­omy and feed­ing into a boom­ing tourism sec­tor.

But its Vat fate was tied up with that of the ho­tel in­dus­try, where op­er­a­tors have been hik­ing prices in the cap­i­tal city for years while en­joy­ing a sub­sidised Vat rate.

This made it more dif­fi­cult for restau­rant and cof­fee shop own­ers to dif­fer­en­ti­ate them­selves in the ar­gu­ments about whether they should ben­e­fit from a lower rate.

Restau­rants some­times have to op­er­ate on pretty thin mar­gins and a hit to rev­enue or a hike in costs can have an ef­fect on smaller busi­nesses.

With the Vat rate, this isn’t nec­es­sar­ily a higher cost, be­cause the punter pays. But restau­rant own­ers can ar­gue that they face a lot of com­pe­ti­tion from the surge in new places to eat, as well as higher wage bills and most likely higher rents in re­cent years.

Then there is the Dublin ver­sus the rest de­bate. Even if restau­rants in Dublin (above) are packed to the rafters, as are ho­tels much of the time, it isn’t nec­es­sar­ily the case in ho­tels or in restau­rants in other parts of the coun­try.

In or­der for restau­ra­teurs to make a solid ar­gu­ment for re­tain­ing the lower rate, they have to be able to show that a higher Vat rate will im­pact their rev­enues. In other words that they will end up with fewer cus­tomers, which in turn would lead to job losses.

As the Depart­ment of Fi­nance pointed out, the higher Vat rate would mean an item cost­ing €3 would in­crease in price to €3.12.

A €10 meal in­clud­ing a soft drink would end up €0.33 dearer, while a €50 din­ner with a €10 bot­tle of wine would only go up to €51.65. Not the most earth-shat­ter­ing price hikes.

The in­dus­try ar­gues that any cost in­creases will make Ire­land less com­pet­i­tive for tourism, at a time when Brexit — among other things — is ap­proach­ing. But a re­cent Depart­ment of Fi­nance state­ment said the 9% Vat rate had al­ways been in­tended as tem­po­rary and its re­moval came be­cause of a “de­cline in com­pet­i­tive­ness”.

Tourism is hugely im­por­tant to the econ­omy and to over a quar­ter of a mil­lion jobs. Brexit is a gen­uine threat to the tourism sec­tor but vis­i­tor num­bers from Bri­tain are not as im­por­tant to the over­all mix as in the past. Vis­i­tors from Bri­tain ac­count for just one third of the to­tal, com­pared to nearly half a decade ago. And ac­cord­ing to Failte Ire­land, tourism num­bers are set to grow in 2019 de­spite Brexit and the higher Vat rates. The state agency sees the num­ber of tourists vis­it­ing Ire­land grow­ing to 9.6m, plus a fur­ther 9.8 mil­lion do­mes­tic trips. Failte Ire­land is fore­cast­ing a 3% rise in vis­i­tor num­bers but a 5% in­crease in rev­enues be­cause of a larger pro­por­tion of higher spend­ing vis­i­tors from North Amer­ica and Europe. De­spite all of these counter-ar- gu­ments about tourism, the truth is there are lots of smaller restau­rants and cafes in towns and vil­lages around the coun­try. They may not see the Vat is­sue alone as a make-or-break, but they are cer­tainly more vul­ner­a­ble to any rev­enue squeeze in their busi­ness from fewer cus­tomers.

Con­trast the sit­u­a­tion with the book­ies. Pun­ters plac­ing a bet pay zero Vat but the bookie pays 1% bet­ting tax. From Tues­day, that will have gone up to 2%. So the state col­lects 13.5% of what you spend on your cof­fee and buns but just 2% on what you spend bet­ting on a third di­vi­sion Rus­sian league soc­cer match.

Restau­rants and cafes have added enor­mously to the so­cial and eco­nomic life of many towns around the coun­try. You don’t hear peo­ple com­plain there are too many restau­rants or cafes in this town. Can the same be said about bet­ting shops?

The bet­ting in­dus­try was equally un­happy about the dou­bling of the bet­ting tax. With bet­ting the bookie pays it and not the punter. They say it will drive smaller book­ies out of busi­ness. The in­dus­try has pushed for an al­ter­na­tive which would see them pay 10% of gross profits. Book­ies say this would be a fairer method and would still bring in an ex­tra €25m for the state as op­posed to the 2% charge, which should bring in about €50m.

The in­dus­try has se­cured a review from the Depart­ment of Fi­nance which will ex­am­ine the im­pact of the 2% rate on jobs.

I am sure the restau­rant sec­tor would love some­thing sim­i­lar but there is no sign of Mer­rion St re­lent­ing, mak­ing any ex­cep­tions or caveats on the Vat is­sue. Be­sides, it might be dif­fi­cult to prove which fac­tors are af­fect­ing jobs in the sec­tor.

Big bookie chains would ben­e­fit enor­mously from a switch to per­cent­age of gross profits and they are not ex­actly fi­nan­cially vul­ner­a­ble as many smaller op­er­a­tors might be.

Tax­a­tion pol­icy by its very na­ture can be ruth­less. But where valid eco­nomic ex­cep­tions based on size or on lo­ca­tion are pos­si­ble, surely they should be ex­am­ined.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.