Dáil Éireann Debate, Tuesday - 13 February 2024
239. Deputy Michael Ring asked the Minister for Finance in relation to the VAT rate increase from 9% to 13.5% for food-led hospitality businesses, if he will reconsider and reinstate the VAT rate to 9%; and if he will make a statement on the matter. [6569/24]
Amharc ar fhreagra242. Deputy Michael Healy-Rae asked the Minister for Finance if he will address matters in relation to the increase in VAT on food from 9% to 13% and other costs and the way this will impact on the restaurant industry (details supplied); and if he will make a statement on the matter. [6622/24]
Amharc ar fhreagraI propose to take Questions Nos. 239 and 242 together.
As the Deputy will be aware the 9% VAT rate applied on a temporary basis to the hospitality and tourism sectors until 31 August 2023 when it reverted to the 13.5% rate. The 9% rate was introduced on 1 November 2020 in recognition of the fact that the tourism and hospitality sectors were among those most impacted by the public health restrictions put in place throughout the pandemic.
The economic rationale for a VAT rate reduction at that time as it was in 2011 when it was also reduced to 9% was to lower consumer prices, encouraging higher demand, more output and an increase in employment.
Despite facing numerous successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead, as inflation eases, the real disposable income of households should recover and support consumer spending. As a result, households are on a stronger financial footing and this will support demand for contact-intensive services including the tourism and hospitality sectors.
In relation to employment, between the end of 2020 when the 9 per cent rate was re-introduced, and the third quarter of 2023, total economy-wide employment expanded from 2.3 million to reach a record high of 2.66 million, an increase of 17 per cent. The Q3 2023 Labour Force Survey indicated that employment in the accommodation and food service sector stood at 181,000.
It is noteworthy that 14 EU countries have a VAT rate of 12% or higher on food services. Our nearest neighbour in Great Britain and Northern Ireland has a VAT rate of 20% on food services.
It is important to remember that VAT reductions, even temporary VAT reductions, have a cost to the Exchequer. The estimated cost of the 9% VAT rate for tourism and hospitality, from 1 November 2020 to 31 August 2023, was €1.2 billion. This represented a very substantial support by the Government to the hospitality and tourism related sectors.
The cost of a further temporary VAT reduction to 9% for a full year is estimated to be €764m. Even where the measure is restricted to food and catering services, the estimated full year cost is €545m.
In addition, while it is possible to change the VAT rate for hospitality or accommodation without reference to the other, if accommodation reverted to 13.5% while food/catering was kept at 9% this change would have to apply to all accommodation including B and Bs and small hotels because of the principle of fiscal neutrality which requires universal application to a sector.
I am advised by Revenue that there would be significant practical operational concerns in having different VAT rates applying to hotel accommodation and meals given how the sector operates, with various packages ranging from bed and breakfast accommodation through to all-inclusive board and lodging packages.
This could lead to the underpayment of VAT because the charge for accommodation and meals would have to be apportioned. In the views of Revenue, it would undoubtedly provide opportunities for tax planning, which would be difficult to police. This would give rise to administrative and operational complexity as well as increased risk of avoidance and scope for manipulation of the VAT system.
The Government wants to maintain a healthy and profitable environment for the sector going forward. However, in making any decision in relation to VAT rates or other taxation measures, the Government must balance the costs of the measures in question against their impact and the overall budgetary framework.
The Deputy will be also be aware that I recently announced changes to the tax debt warehouse scheme including a reduction in the interest rate on warehouse debt to 0% which, amongst other sectors, will assist businesses in the tourism and hospitality sector.
As at 26 January 2024, approximately 5,700 customers in the Accommodation and Food Service sector have warehoused debts amounting to €265 million, it should be noted that just over 3,100 (56%) of these have warehoused debts of less than €5,000.
In light of these points I have no plans to reduce the VAT rate for the tourism and hospitality sector to 9%.
