THE GOVERNMENT WILL restore the VAT rate for the hospitality sector to 13.5%.

The tax for the sector was cut to 9% to stimulate the tourism industry in 2012, but will now be restored from 1 January as part of Budget 2019.

Minister for Finance Paschal Donohoe recognised that the industry supported almost 240,000 jobs, and said a new economic reality had taken hold which meant the reduction was no longer justified.

“Since the introduction of the new VAT rate in 2011, overseas visitors numbers have increased by over 3.4 million, and tourism employment has grown significantly,” he said.

The measure is expected to raise €466 million next year.

Donohoe added that the increase allowed the government to retain its 12.5% corporate tax rate, and said the revenue it raised meant more investment in housing, education and childcare was possible.

The impact of the measure will mainly be seen on hotels, other short-term guest accommodation providers and restaurants.

However, it will also apply to other areas businesses, including cinemas, theatres, hairdressers, museums and art galleries.

Commenting on the changes, John Stewart, Tax Director at accounting company Deloitte said the increase will have no impact on non VAT-registered businesses including many of those in the B&B sector.

“Consequently, the good news for those smaller operators is that, although they did not benefit from the introduction of the reduced VAT rate, they will not suffer any financial cost as a result of the increase in the rate,” he said.