Businesses warn they must pass on VAT increases to customers

Publicans and other traders who benefited from the reduced 9 per cent VAT rate have warned that prices will rise for consumers now that the 13.5 per cent rate has been restored.

The temporary 9 per cent VAT rate for tourism, hospitality and some other services - including hairdressing - expired at midnight on Thursday, having been extended for the final time by the Government in February.

The VAT change was one of three price increases that took effect from midnight, the others being an end to reduced taxes on motor fuel and an extra charge for unrecycled household waste.

The excise duty on a litre of petrol and diesel will climb by 7c and 5c respectively from Friday as a measure introduced last year to help consumers during the cost of living crisis nears to an end.

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In better news for consumers, Energia on Friday announced plans to reduce its home energy prices by up to 20 per cent from the start of next month in a move which will save some customers almost €700 on their combined electricity and gas bills over the course of 12 months.

The Irish Hotels Federation (IHF) was among a number of industry bodies to criticise the restoration of the VAT rate for tourism. Its president Denyse Campbell said it “seriously undermines Ireland’s ability to compete internationally for visitors and comes at a time when hard-pressed Irish consumers are already under financial stress with persistent inflation and soaring mortgage interest rates.

“Increasing tourism VAT to 13.5 per cent will ultimately have an inflationary impact, which is a major concern given the potential implications for people’s spending decisions.”

The restored rate meant Ireland had the third highest VAT rate in Europe, she added.

Echoing these concerns, Vintners Federation of Ireland president John Clendennen said: “Increasing VAT to 13.5 per cent will negatively impact the trade as the summer season ends and a quieter autumn trading period arrives. Customers are already feeling the pinch with cost of living increases so this is a short-sighted move by government that will lead to concerns about long-term viability.”

Liam Edwards of Jim Edwards Bar and Restaurant in Kinsale, Co Cork, which employs 30 people, said the reduced rate had helped to counter a huge increase in overheads in the past two years.

“We’ve seen wage increases, we’ve seen energy costs spiral out of control, and I suppose the big costs that we’ve seen in restaurants is food produce has increased tenfold. So to have the VAT rate increase by 50 per cent really is the final nail in the coffin for some businesses.”

When asked if the hospitality sector could absorb the price increases, Mr Edwards said businesses had already done so over the past two years. There was no choice but to pass on the VAT increase to customers if they wanted to stay in business, he told RTÉ Radio’s Morning Ireland.

Hairdresser Gemma Crosson from Sligo told the same programme the VAT increase was pushing customers into the black market in which service providers were not paying tax or VAT.

Minister for Finance Michael McGrath on Tuesday said this increase in excise tax on fuel was “locked in” but that a final planned increase to the tax, which would bring it back to its original level from the end of October, would be kept under review as the Government prepares the budget package. This would add 6 cent a litre to the price of diesel and 8 cent for petrol.

The average cost of motor fuel stands at around €1.70 a litre at present, meaning it could soon cross the €2 barrier again.

The Irish Petrol Retailers Association said if fuel prices are increased again at the end of October there would be a sharp rise in fuel tourism across the Border, claiming this could cost the economy €230 million.

The association’s spokesman David Blevins said: “What we have said to Michael McGrath is we would like to see the October 31st increase delayed into the spring of next year and to see what is happening in global energy markets.”

Mr Blevins said retailers had no choice but to increase prices. “At the end of the day, the retailer is at the end of the chain; they must respond to the increase and decreases in wholesale refined costs. And if an excise duty increase is put on, or a VAT change is put on, that is applied to the retailer. So the retailer has no choice.”

[ Price hikes for petrol and diesel, waste disposal and hospitality come into force today ]

Also on Friday, a new levy on customers takes effect under the Waste Management (Landfill Levy) (Amendment) Regulations 2023 and the Circular Economy (Waste Recovery Levy) Regulations 2023, which introduces a waste recovery levy of €10 per tonne (or 1,000kg), and a €10 increase to the existing “landfill levy” to €85 per tonne.

Refuse collection providers will increase their prices to offset the impact on their business of the levy, which aims to encourage recycling and reduce the amount of waste that goes to landfill.

Conor Walsh of environmental firm SLR Consulting said for a household that might generate about 700,000-800,000kg of waste a year the VAT inclusive cost would only be in the region of €10 annually if passed on by waste collectors.

In some cases, he said, a household may remain in the same price band and there would be no effect on them at all, but in others collectors might increase per kilo weights at the annual renewal date or immediately.