Reduced VAT rate for hospitality will cost exchequer €400m

The reduced rate of VAT for hospitality and tourism businesses impacted by the pandemic is expected to cost the exchequer just over €400 million, Minister for Finance Paschal Donohoe has confirmed.

The reduced 9 per cent rate, announced in the budget, comes into force this Sunday, and has the potential to benefit 14,600 businesses, Mr Donohoe said.

It applies to bars, restaurants, tourist accommodation, cinemas, theatres and museums, and will run until December 31st, 2021.

Mr Donohoe confirmed that the move would cost the exchequer €336 million in 2021 and €401 million in total.

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“This measure represents targeted, timely and temporary support to those areas of the economy most deeply impacted by the public health restrictions,” Mr Donohoe said.

“I understand that many businesses remain closed for now, and those that are open are operating at significantly reduced capacity. I am putting this reduced rate in place until December 2021 in order to provide significant additional support to businesses throughout 2021 when hopefully our economy and society can start to return to some form of normality.”

Mr Donohoe highlighted that the sector most seriously impacted by the pandemic and the health restrictions was the accommodation and food services sector, which had seen employment fall from 181,000 in the second quarter 2019 to 128,000 in the second quarter of this year.

However, he noted there were approximately 122,000 workers in this sector claiming the Pandemic Unemployment Payment (PUP) in June.

He said while PUP claims decreased from 122,000 to 90,000 by mid-October, the impact of the pandemic remained considerable.

“The introduction of a 9 per cent VAT rate for the tourism and hospitality sectors alongside other measures, such as the Employment Wage Subsidy Scheme and the Covid Restrictions Support Scheme, forms an important part of the Government’s economic response to the pandemic,” said Mr Donohoe.