Tax rise warning for hotels ‘milking’ guests with high room charges

Hotels “milking” customers with high room charges face losing their entitlement to a special low Vat rate, Tourism Minister Shane Ross has warned.

A tiered system is being considered which could see bigger, more profitable hotels slapped with larger Vat rates if budget changes are agreed by the Government.

Under the proposals, the full 13.5% rate would be restored for accommodation businesses such as hotels, bed and breakfasts, and guesthouses. The lower rate of 9% could remain for others such as restaurants, cafes, hairdressers, newspapers, and entertainment services.

Mr Ross hit out at big hotels yesterday and revealed he is holding talks with Finance Minister Paschal Donohoe about letting certain hotels pay the special low rate. “The important thing here is to protect the tourist industry,” he said.

“The hotels which are actually milking the system at the top can afford to pay a higher rate of Vat. But this cannot be done if it’s going to adversely affect anybody...in middle of the road, or B&B or smaller hotels or rural Ireland. We must not do any damage to that industry or those people.”

Pressed for clarity around how a tiered Vat rate for hotels could work, he said: “That’s got to be looked at, it’s a very complicated business to make sure that nobody else suffers.”

Tourism Ireland chief executive Niall Gibbons said high hotel rates are damaging Ireland’s reputation. He said that, in recent years, the average room rate in Dublin had gone beyond its European competitors.

“That’s going to cause complications in certain markets for us,” he said. “Particularly where a currency has moved as well because it exacerbates the issue, particularly from the British market.”

Travel costs getting here by plane have become competitive, with seat numbers rising by almost 170,000 to 590,000 since 2011.

“But in relation to accommodation we are seeing, certainly in the long term, unsustainable increases,” said Mr Gibbons.

Price gouging has been a concern in Dublin for major sporting or music events. It is estimated that increasing the Vat for tourism accommodation could return up to €208m for the exchequer.

A recent Department of Finance report described the special Vat rate for the whole tourism and entertainment sector as an economic “deadweight” and suggested it had cost the exchequer €2.6bn since 2011.

Mr Ross said hotels could be assessed on their profits, not by their room numbers. Pressed again for specifics, he said talks are ongoing for the October 9 budget.

“It’s not a two-tier system… it could be a several-tier system depending how it works. But what I am suggesting is that those hotels who are milking the system should not necessarily be allowed a preferential Vat rate,” said Mr Ross.

The important message here is that if anybody is milking the system, they may no longer be given such a preferential Vat rate, but the industry and the small restaurants and medium sized hotels who are not doing that shouldn’t suffer in any way.