I am advised by Revenue that the VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive. Hotel and holiday accommodation is listed in Annex III of the Directive and, therefore, can be subject to VAT at a reduced rate.
In Budget 2021, as part of the Government’s response to the economic situation arising from the Covid emergency, some goods and services that previously had been subject to VAT at the 13.5% rate were temporarily moved to the 9% rate, including hotel and holiday accommodation. In Budget 2022, I announced an extension of the arrangement until end August 2022. In May, the Government agreed a further extension until 28 February 2023.
As the Deputy will be aware, there is no legal obligation for companies to pass on price reductions arising from a decrease in VAT. I have not engaged with the hotel industry in relation to this issue but would encourage hotels in Dublin and across Ireland to reduce their prices by the equivalent of the VAT reduction.
I am informed by Revenue that the estimated cost of continuing to apply the 9% VAT rate to hotels and holiday accommodation (instead of the 13.5% rate which normally applies), from 1 September 2022 until 28 February 2023, is in the region of €70 million. This estimate is based on the most recently available third-party consumption data and assumes no behavioural changes in response to price.
The estimated full-year cost of this measure is presented in the Revenue Ready Reckoner at the following link:
www.revenue.ie/en/corporate/documents/statistics/ready-reckoner.pdf
