THE GOVERNMENT HAS announced that a special VAT rate for the hospitality sector is to be extended until early next year.  

The special 9% rate for the hospitality sector was introduced in 2020 in a bid to lessen the impact of the Covid-19 pandemic. 

It was due to lapse in August this year, but will now be retained for a further six months until 28 February 2023.

The extension will cover the same goods and services as the original measure, including restaurants, cinemas, theatres and museums, at a cost of €250 million.

Finance Minister Paschal Donohoe brought a memo to Cabinet to extend the lower rate.

Speaking following the Cabinet meeting, he said that the tourism and hospitality sector was “unique impacted” by the public health restrictions put in place throughout the pandemic.

“Through no fault of their own, bars, hotels and restaurants had to close on multiple occasions to help the country make its way through the worst of the public health crisis,” he said.

“The Government put in place unprecedented support for the economy, with the wage subsidy scheme supporting the incomes of citizens across the country. The accommodation and food services sector was the most supported by the employment wage subsidy scheme, to ensure that workers maintained the link with their employers and to give businesses the best possible chance to weather the pandemic.”

He said extending the VAT rate will provide further support to the tourism and hospitality sectors over the busy November/December period and into the early New Year.

No further extension to this measure is envisaged, meaning the 13.5% rate will apply to these sectors from 1 March 2023.

Donohoe also said that the end of the wage subsidy scheme on 31 May will be a challenge to some hospitality businesses.

“It is a very considerable change in the support that businesses in our economy have been receiving, but we need to bring the scheme to an end,” he said.

“The Government in December laid out very, very clearly what we would do in relation to the future of the employment wage subsidy scheme. We’ve implemented that. All non-hospitality businesses ceased to participate in the scheme last month, and we now have an important core of our hospitality sector still in the scheme.

In terms of the future, the reason why we have maintained the employment wage subsidy scheme the way we have and the reason why we are making the 9% decision today is to give those businesses every chance of being viable in the years to come.

Ahead of the Cabinet meeting, Green Party leader Eamon Ryan said that the rate changes will be timed to ensure that the hospitality sector is not adversely affected.

He said that “when we go into the dark winter, it’s difficult for hospitality – we don’t want to change it then.

“It’ll be timed in a way that gives the hospitality sector the best chance to get back on its feet. It will be brought back up, but it will be done in a way to make sure it doesn’t adversely hit the industry.”

Minister for Tourism. Culture, Arts Gaeltacht, Sport and Media Catherine Martin said the Hospitality and Tourism Forum has repeatedly raised the importance of extending the lower VAT rate for the entirety of 2022.

“I have pressed on this issue for several months now and I know that this extension will give the sector time to rebuild and consolidate after a harrowing two years under Covid-19. The extension will promote business survival and support employment in the industry,” she said. 

Groups representing the sector welcomed the move. Adrian Cummins of the Restaurants Association said “it will help businesses ahead of a difficult tourism season.”

“Our Association will be advocating for a continuation of the 9% vat rate to the end of 2023 at least,” Cummins said.

In response to a parliamentary question last week, minister Donohoe said Revenue informed him that the estimated cost of extending the 9% rate for the entirety of 2023 would be in the region of €500 million.

Groups representing the sector welcomed the move. Adrian Cummins of the Restaurants Association said “it will help businesses ahead of a difficult tourism season”.

“Our Association will be advocating for a continuation of the 9% vat rate to the end of 2023 at least,” Cummins said.

In response to a parliamentary question last week, minister Donohoe said Revenue informed him that the estimated cost of extending the 9% rate for the entirety of 2023 would be in the region of €500 million.

However, it is not believed that the extension will run for that length of time.

Additional reporting from Christina Finn and Jane Moore