One in five restaurants are at risk of closing if Vat rate rises, warns industry body

An economic report contested that the reduced rate of Vat should remain in place as the current trading environment remains volatile post-pandemic due to inflation

Hospitality Vat is expected to return to 13.5% at the start of March.  Picture: iStock

One in five restaurants are at risk of closing if the Vat rate increases, a hospitality industry body warns.

The Restaurants Association of Ireland (RAI), is making its final push for Government to extend the 9% Vat rate for hospitality, which was introduced during the pandemic and is set to return to 13.5% at the start of March.

“The Government needs to re-evaluate their plan to raise the Vat rate for the hospitality sector by 50% as this hike comes in conjunction with various constraints such as the end of the Temporary Business Energy Support Scheme,” said RAI CEO Adrian Cummins.

“Thus, leaving restaurant owners, many of whom identify as SME’s, to battle pressures on margin,” he added.

An economic report, commissioned by the RAI, contested that the reduced rate of Vat should remain in place as the current trading environment remains volatile post-pandemic due to inflation, which has been fuelled by the war in Ukraine.

The report, conducted by Anthony Foley, associate professor emeritus of economics at Dublin City University business school, stated:

In current inflationary times and post-Covid, the great majority of restaurants would not be able to absorb the Vat increase and avoid price increases while continuing to operate as before.

In addition, the report also warned that despite the annual pace of Irish inflation easing to 7.7% in January as energy price pressures relaxed due to a mild winter, high prices are likely to linger.

“Costs will continue to increase. The EU economy is in a period of increasing interest rates and higher interest rates will persist for the medium-term future,” stated the report.

The RAI also said that hiking the Vat rate will be anti-competitive as other economies offer lower Vat rates for hospitality businesses by comparison.

Economist Jim Power stated in a separate report on the issue that the expected hike in hospitality Vat could lead to 24,000 job losses by 2023.

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