This year’s budget has hit the tourism and hospitality sector hard, with the VAT rate now being replaced with a higher rate of 13.5%. The 9% VAT rate was introduced initially back in 2011 during the recession to help support this industry in extremely difficult economical times, but now the Minister for Finance Paschal Donohue believes this reduction is no longer justified.
Donohue has said “Since the introduction of the new VAT rate in 2011, overseas visitors have increased by over 3.4 million, and tourism employment has grown significantly”. The government has estimated that this rise in VAT will raise around €560 million. The Minister has mentioned that with this increase, it has allowed the corporate tax to stay the same and also with this new revenue, it will allow for more investment in childcare, education and housing where possible. This increase will directly impact all related VAT registered businesses but will have no effect on non-VAT registered establishments including the majority of those in the B&B sector. However, we will see a hike on prices within the hospitality sector in general, including cinemas, theatres, hairdressers, museums and art galleries.
When the VAT rate comes into effect it will not only affect businesses, but may also affect property development. According to the Irish Independent, a property market analysis had taken place estimating around 1,200 new hotel rooms to build every year between 2018 and 2020. This prediction was made before the VAT increase was made. It has also been voiced that some hoteliers and representatives are not happy with the introduction of the higher VAT, with the independent TD Michael Healy-Rae describing this result as nothing less than a ‘slap in the face’ for this sector and especially for small and rural businesses. Many across the country are faced with fear and worry that this change will effect business, as it will result in the prices of food and accommodation increasing for customers and in some cases, staff will need to be reduced.
Overall, the introduction of a higher VAT has received some very mixed responses but what do you think? Let us know on Facebook, Twitter or LinkedIn your opinions on whether you feel the change was a good or a bad idea.