THE 9% VAT rate is likely to be scrapped for larger hotels in October’s Budget.

It is understood Tourism Minister Shane Ross has discussed the issue with Finance and Public Expenditure Minister Paschal Donohoe, arguing that large hotels making huge profits no longer need the reduced rate.

In an interview with TheJournal.ie, Tourism Minister Shane Ross said big-profit hotels operating in Ireland are damaging the country’s tourism reputation abroad by charging hundreds of euros for hotel rooms.

‘Difficult to justify’

While he said the 9% rate would not be totally binned, he wants it changed.

“I am not going to scrap it, but I think it is very difficult to justify giving preferential VAT treatment to big hotels in Dublin and elsewhere…

“Large hotels making massive profits are getting the benefits of this… It is very difficult to justify the big hotels charging €200 and €300 a night for rooms,” he said.

Last year, a Department of Finance briefing document argued the 9% rate should be scrapped and hiked back up to 13.5%, yielding around €500 million a year.

Despite the calls, the rate remained untouched in last year’s Budget.

The call to bin the rate was repeated this week, when a report by the Tax Strategy Group, said “foregone tax revenue arising from the 9% rate in 2017 was approximately €490 million and €2.6 billion cumulatively since its introduction”.

The report also branded the rate a “deadweight”.

Back to Celtic Tiger levels

Department of Finance figures also indicate that the country’s hotels are making record profits, with room prices surpassing Celtic Tiger levels.

With the Irish tourism industry back on its feet, Ross said the matter of increasing the VAT rate “should be considered in the national interest”.

“There is a danger here of killing the goat with the goose, there is a danger here that they will damage the reputation of Ireland abroad and make it look like, and be in fact, a very expensive place to visit, and they will damage the tourism industry in Ireland,” he said of hotels charging high rates.

Instead of scrapping the 9% VAT rate entirely, the minister wants it to continue to apply to small operators and other industries.

The difficulty is… if you put it back up for very big hotels you mustn’t damage the smaller people -  the people who are the backbone of the Irish tourist industry.

You must keep it at 9% for restaurants, small businesses, newspapers, hairdressers – all those people who have given a huge amount of employment and benefitted from it, but who are not ripping off tourists or anyone else.

What would be categorised as a large hotel?

Ross said that has to be worked out, but that profits could be assessed, or the amount a hotel charges per room compared with international charges per room.

“There was a time it was needed, it was a great measure and it created a lot of jobs… but now if they don’t need it why give it to them.

“If they are going to make massive profits anyway why give it to them and if they are damaging the reputation of Ireland internationally you have to take it very seriously,” he said.