Budget VAT rise ‘would undermine’ hotel sector

A mooted Government move to single out hotels for an increase in the special lower VAT rate would be “absolutely incredible” and would undermine the sector, industry groups have said.

The possible move has also been sharply criticised by individual hoteliers, including Des O'Dowd, the owner of the Inchydoney Island resort in west Cork who was recently appointed by the Government to the board of Fáilte Ireland, the State tourism development agency.

The Irish Times reported on Saturday that the hotel sector is expected to be targeted by the Government for an increase in the special lower 9 per cent VAT rate in the October budget.

Under proposals being strongly considered, the full 13.5 per cent VAT rate would be restored only for businesses that sell “accommodation”, such as hotels, guesthouses and bed and breakfasts.

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Other businesses that avail of the lower rate – restaurants, cafes, hairdressers, newspapers and entertainment services – would keep the 9 per cent rate.

The mooted move would mean, for example, that a hotel would levy the 13.5 per cent on its bed stays but only 9 per cent on goods sold in its bars and restaurants. Increasing the levy on “tourist accommodation” would raise €208 million and would be justified because of the improvement in the tourist sector and high prices charged by some hotels.

Economic ‘deadweight’

Last week, a Department of Finance report emerged that described the special VAT rate as an economic “deadweight” and suggested it had cost the exchequer €2.6 billion since 2011.

Mr O’Dowd said he was concerned by the “discourse” that has emerged around describing the rate as a “cost” to the exchequer. He said the tax take from the tourism sector had risen significantly since its introduction.

“The rate of VAT on hotel accommodation annoys people because they feel they’re being overcharged by Dublin hotels,” said Mr O’Dowd.

“So there is very little public empathy there. It is very frustrating as an owner/operator to see the consequences of [the Dublin issue] dominate all public discourse and potentially Government policy.”

In response to the suggestion that the rate might be changed, Michael Lennon, president of the Irish Hotels Federation, said the 9 per cent rate was the "right rate for the sector".

“At a time of serious economic uncertainty around Brexit, it absolutely incredible to suggest that the Government would undermine the hotel sector and impose hundreds of millions in additional taxes on tourists and visitors, and make us less attractive for visitors,” he said in a statement.

He also said that while tourism businesses had “achieved a return to growth in recent years, not every tourism business is enjoying the same level of success”.

“Despite the upturn, the hotel sector is still a number of years away from achieving sustainability in certain regional areas, especially those reliant on seasonal business.”

The Irish Congress of Trade Union said the idea was “welcome progress” in its campaign to restore the full 13.5 per cent rate.

ICTU said there were a number of reasons to restore the rate, although it did not single out the hotel sector. Among these, it said business was booming in the wider hospitality sector, and the larger operators were benefiting more than others. It also said customers did not benefit from the lower rate and employees in the sector were paid less than others is the economy.