Vat hike could lead to 24,000 job losses, report suggests

The State reduced the hospitality Vat rate from 13.5% to 9% to help hospitality businesses survive the impact of the pandemic. However, the current plan by Government is to put the rate back to 13.5% in March

It is estimated that about 243,900 people were employed in the tourism industry last year.

The expected hike in hospitality Vat could lead to 24,000 job losses by 2023, an expert has warned in a new report.

The report titled, The Economic Rational for Extending the 9% Vat rate beyond February 28, found the planned increase this year would further undermine the competitiveness of a sector that is currently under significant pressure and facing many challenges in 2023.

“The bottom line is that the risk of a downturn in international travel caused by a marked deterioration in the global economy is very real and could have serious implications for Ireland’s tourism industry,” said economist Jim Power, who worked on the report.

The State reduced the hospitality Vat rate from 13.5% to 9% to help hospitality businesses survive the impact of the pandemic. However, the current plan by government is to put the rate back up to 13.5% in March.

“Given the global and domestic challenges facing the sector, the timing of the proposed increase could not be more damaging,” said Mr Power.

The Vat rate for hospitality was originally 9% during the Celtic Tiger years but when the boom went bust this was raised to 13.5%. Then when Covid-19 forced restaurants, pubs, hotels and other tourism businesses to close, the State stepped in to reduce the rate.

The estimated cost of the final extension is €250m. The overall cost of this measure from November 1, 2020, to February 28, 2023, is €902m.

Britain also reduced its Vat rate for hospitality during the pandemic, but to a lower rate of 5% and plans to hike it to 12.5% at the end of March this year.

Mr Power’s report, which was commissioned by business representative group the Irish Tourism Industry Confederation, or ITIC, said the rise in Vat could be fully passed on to the consumer and would consequently increase the price of accommodation and food services by about 4.1%.

“Coming at a time when there is such upward pressure on prices, this would be negative and would undoubtedly dampen demand further in the tourism and hospitality sector,” the report said.

The ITIC estimated 5.8m visitors arrived in Ireland in the first eight months of 2022 and it is anticipating in the region of 7.5m one-night tourists for the full year. This compares to 9.7m tourists in 2019.

Fáilte Ireland estimates that every €1m of tourist expenditure helps to support 27 tourism jobs and 1,000 additional overseas tourists support 20 jobs in the tourism industry. It is estimated that about 243,900 people were employed in the tourism industry last year.

Some in the tourism industry have argued that the reduced rate of Vat should be made permanent as they have said a high Vat rate puts pressure on hospitality businesses that often operate on tight margins. This was evident even before the pandemic as five Irish restaurants pulled down their shutters in the first two days of 2020.

“The Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media has a number of objectives for the sector," said Mr Power.

The aim is to support a vibrant sector that contributes to employment across the country, that is economically, socially and environmentally sustainable, that helps promote a positive image of Ireland overseas, and is a sector in which people want to work," he said. 

"The plan to increase the Vat rate to 13.5% this March is not consistent with these objectives," Mr Power added.