Reduced 9% VAT rate for hospitality sector to be extended

Finance Minister Paschal Donohoe will bring the proposal before his ministerial colleagues for approval was due to expire at the end of August.

The reduced 9% VAT rate for the hospitality sector is to be extended under plans to be approved by Cabinet on Tuesday, it has been confirmed.

Finance Minister Paschal Donohoe will bring the proposal before his ministerial colleagues for approval was due to expire at the end of August.

However, in light of the severe cost of living increases and high rates of inflation caused by the Russian invasion of Ukraine, Mr Donohoe will move to extend the lower rate for a yet to be determined length of time.

After desperate pleas for help from the representative bodies from the hospitality and restaurant sectors, the lower rate was introduced in 2020 during the Covid-19 pandemic.

It was already extended in last October’s budget.

Senior Government sources have confirmed to the Irish Examiner that Mr Donohoe will table the proposal after discussions with the three coalition leaders on Monday evening.

The move will not be open-ended and there is some belief within Government that the extension could run until the end of the year.

Mr Donohoe, in replies to recent parliamentary questions, stated that extending the lower rate until the end of 2023 would cost in the region of €500m and obviously a shorter extension would not be as costly.

In recent days, leading members of the hospitality sector have taken to social media to highlight their plight and their demands for the lower rate to be extended.

Mr Donohoe faced considerable pressure when he moved to abolish the 9% VAT rate introduced by Michael Noonan after the financial crash and the move to extend the lower rate is seen as an aid to businesses which may be at risk of insolvency.

Tourism Minister Catherine Martin stated last month that she was seeking for the reduced rate to be extended.

Adrian Cummins of the Restaurants Association of Ireland welcomed the proposed move on the lower VAT rate. Mr Cummins said it would help settle businesses ahead of what will be a bumpy tourist season. 

In light of the pressures facing the industry, Mr Cummins said the lower rate should be extended to the end of 2023 given the debt many businesses have built up and that tourist numbers are still not back to pre-pandemic levels.