By Pádraig Hoare
The hotel industry “needs certainty either way” around the future of the 9% Vat rate in order to plan for an estimated 11,000 rooms by 2025, according to an expert in the sector.
Aiden Murphy, a partner at Crowe Ireland, said hoteliers and lenders alike need to know what Vat rate would apply as they prepare business plans for the medium term.
Mr Murphy was speaking as Crowe Ireland released its 23rd annual analysis of the hotel sector, which found record profit and room occupancy levels, while a rise in average room rates has been recorded in all regions.
The 9% Vat rate, which was lowered from 13.5% during the height of the recession to boost hospitality and tourism, has come under fire from critics who say it has now outlived its purpose.
Room prices have surpassed Celtic Tiger levels and the exchequer is missing out on almost €500m yearly from the tax incentive, according to Department of Finance figures.
A report by the Tax Strategy Group, made up of senior civil servants and chaired by the Department of Finance, yesterday said “foregone tax revenue arising from the 9% rate in 2017 was approximately €490m and €2.6bn cumulatively since its introduction”.
“It is also estimated that a return to a 13.5% Vat rate would result in revenue gains of approximately €520m in 2018,” said the group.
Room rates were up 6.9% on average in 2017 when compared with 2016, with rooms in Dublin hotels at an average of €137, the Crowe report found.
The south-west and west were the strongest performing areas in 2917, with average room rates for both regions rising to more than €100 and €87, respectively. The south-west grew 8%, while the west saw a 9.7% rise.
For the first time since 2011, average room rate growth in regions outside Dublin was higher than the capital, says the report.
Mr Murphy said if the country is to remain competitive in the sector, it needs to plan for a €1.5bn investment for 11,000 rooms in the next seven years.
Failure to deliver this capacity will impact on competitiveness and Ireland’s ability to maximise revenue from the tourism sector, says the Crowe report.
“Adding to the 9% Vat rate would have serious implications for the profitability of hotels and could lead to the deferring of new hotels and expansions. If we are to increase visitors from 9.9m to 13.7m by 2025, then a further 11,000 rooms are needed. It is a conundrum. The industry needs certainty either way on the future of the 9% Vat rate,” said Mr Murphy.