Tourism industry 'bewildered' by Vat extension timetable

The 9% rate was seen by tourism leaders as a proven success — but on September 1, 2022, Ireland will return to having one of the highest tourism Vat rates across Europe, writes Eoghan O’Mara Walsh of the Irish Tourism Industry Confederation.

Tourism bosses say they are "bewildered" over why the 9% Vat rate for hospitality businesses has only been extended to the end of next August.

With an industry such as tourism and hospitality still in survival mode, Budget 2022 was always going to be critical.

With the economy unmercifully walloped by the pandemic over the last 18 months, would the Government maintain supports and introduce pro-tourism policies that would help the sector to the path of stability and onwards to recovery?

The answer is, well, “sort of”.

Budget 2022 was a very mixed one for Ireland’s most important indigenous industry. Positive news centred on an aviation package, the extension of the wage subsidy scheme to April, enhanced business continuity grants, and increased budgets to target key strategic overseas markets.

However, the failure to extend the 9% Vat rate beyond August was a crushing disappointment that has angered and bewildered many in the industry.

Critically, the Government acknowledged that aviation and connectivity to the island of Ireland was in real distress, and they have put together a €90m package to incentivise airlines to add frequencies, routes, and capacity.

Interestingly, this is to be spent by year-end — suggesting that Government belatedly accepts that it failed to support aviation throughout the pandemic period.

The wage subsidy scheme has been extended through to the end of April, although not to June as the tourism industry had campaigned for.

Still, this is an important support for those fallow first months of the year when tourism numbers will be thin on the ground. 

Tourism is Ireland’s great employer, so businesses need support, and the wage subsidy scheme is vital in this regard.

Another positive for tourism was the increased funding next year for the two State agencies responsible for tourism — Fáilte Ireland and Tourism Ireland. The latter has a key role to promote Ireland in overseas markets as a holiday destination, while the former gets a €50m funding boost to provide critical business continuity funding to vulnerable, but viable, businesses.

However, immediately after the budget, many industry leaders were scratching their heads as to why Minister Donohoe failed to extend the 9% Vat rate through to December 31, 2022, at a minimum.

Instead, the rate will revert to 13.5% on September 1, 2022, thereby damaging Ireland’s competitiveness and giving us one of the highest tourism Vat rates across Europe. 

The 9% rate was seen by tourism leaders as a key recovery tool, and a proven success. Now, when the industry will only be at the foothills of a steep recovery mountain, it will see its Vat rate hiked by 50%.

How much that slows Irish tourism’s recovery is what industry leaders will be worried about in the immediate aftermath of the budget.

Eoghan O’Mara Walsh is chief executive of the Irish Tourism Industry Confederation (ITIC)