Hotels charging more than €150 nightly could be slapped with higher taxes in a likely budget proposal.
The Government is working on a two-tier Vat system for hotels in a bid to stamp out price gouging, especially in Dublin where high rates are “risking our reputation”, Fine Gael sources claim.
A special 9% Vat rate was introduced in 2011 to help the tourism sector recover after the recession.
However, the Government remains concerned that many hotels, especially in Dublin where occupancy rates are close to 90%, are taking advantage of tourists by hiking up rates at peak times.
Minister of state for tourism Brendan Griffin is understood to be pushing hard for a new Vat system which would retain the lower rate for a majority of hoteliers but impose a higher rate on those who overcharge. Independent Alliance Minister Shane Ross is also eager to make changes to the Vat rate and told Tourism Ireland’s mid-year review, last month, he wants big hotels “milking the system” to pay more.
Another proposal which would see Dublin City Council collect a levy on each overnight booking in a Dublin hotel has also been floated but it is understood changing the VAT system is the prefered option.
Officials in the Department of Department of Transport, Tourism and Sport are working with the Department of Finance to finalise the proposals and iron out any legal difficulties.
While the finer details still have to be signed off, it is expected the Vat threshold would be set according to the star rating of the hotel.
The 9% rate, introduced by Fine Gael, is deemed as “sacrosanct” and Government sources say scrapping it completely would be “economically and politically the worst thing to do the worst time in the context of Brexit and all the other challenges we have”.
However, it is understood the department is considering reverting to the original rate of 13.5% if hotels exceed a certain price per night and are looking at setting the threshold at around €150 per night for the average three and four-star hotels.
At the Fine Gael think-in last week, Mr Griffin told colleagues there are now some hoteliers in Dublin putting at risk Ireland’s reputation as a value-for-money destination due to the exorbitant prices being charged. He said changes must be introduced in the October budget.
The minister said simply increasing the Vat rate would be like “throwing the baby out with the bath water” and a “targeted policy” is now required as part of the upcoming Budget.
It is understood Mr Griffin extensively lobbied his colleagues in Fine Gael, many of whom now agree a tiered Vat rate, similar to the way income tax bands are calculated, must be implemented across the hospitality sector.
A spokesperson for Mr Ross confirmed the Department is looking at ways of addressing the high rates being charged by some hotels. However, the spokesperson stressed any changes would have to protect smaller hotels, B&Bs and guesthouses.
It has been estimated that fully restoring the rate would bring in an additional €500m in extra tax for the State, but it is highly unlikely the special Vat rate will be entirely reversed.
The Irish Hotels Federation (IHF) is strongly opposed to any Vat increases claiming it would put Ireland at a major competitive disadvantage compared with other EU countries, particularly at a time when tourism businesses were preparing for Brexit.