The restoration of the 9% hospitality VAT rate is “vital” to save Ireland’s failing pubs, restaurants and cafés, tourism experts have warned.
Yesterday, Dublin’s Ukiyo bar and restaurant became the latest landmark in the city to close its doors for good.
In a message to customers, the bar’s owners said that after 20 years serving the people of Dublin, its profit margins have become “so meagre that there is no future for us and so many more of our fellow businesses”.
“We have tried everything and given everything to this business but unless the Government gets off its hands and helps the hospitality sector, then we will certainly not be the last,” they wrote.
“Three more of our neighbours closed last week; we are all within 50 metres of each other, all respected, long established and highly regarded on one of Dublin’s busiest thoroughfares.
“If this is not direct evidence of a systemic decline in our industry and in our immediate urban fabric then I don’t know what is.”
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Last week, the Public Expenditure Minister Pashal Donohoe poured cold water on hopes for a return to the 9% rate – insisting it would cost the Exchequer “well in excess of €700 million”.
The Restaurants Association of Ireland (RAI) is warning that around 600 businesses have been forced to close their doors since the Government hiked the VAT rate for hospitality to 13.5% last September.
It said a recent survey had found that 74% of its members believe they will have to close their businesses if the VAT rate is not returned to 9%.
A splitscreen showing Paschal Donohoe and the Rustic Stone restaurant before its closure.Irish Tourism Industry Confederation CEO Eoghan O'Mara Walsh told Newstalk that the Government must now take action to protect the hospitality sector:
“The state of the national economy is in a good place at the moment,” he said.
“The Government can well afford the restoration of the 9% VAT rate.
“I actually think it is going to be very important, particularly for regional Ireland.
“We are due to meet Ministers Jack Chambers and Paschal Donohoe next week and we will be making the case very clearly that this vital, important, indigenous sector needs to be supported.
“The restoration of the 9% VAT rate is a vital tool to support the sector.”
VAT
In the runup to last year's budget, Tourism Minister Catherine Martin said Government officials would examine the possibility of decoupling food and accommodation services when it came to hospitality VAT – leaving hotels paying a different rate than pubs, restaurants and cafés.
The change was not implemented in Budget 2024 and a spokesperson for the Department of Finance referred Newstalk to the latest Tax Strategy Group papers which warn that the idea would have "significant practical operational concerns" given that many businesses operate packages ranging from bed and breakfast accommodation through to all-inclusive board and lodging packages.
The papers note that this would create "administrative and operational complexity for both Revenue and taxpayers," potentially leading to the underpayment of VAT and the increased risk of tax avoidance and manipulation of the VAT system.
The papers also note that offering a lower VAT rate to food and drink businesses would still carry a "very significant cost" to the Exchequer as food brings in a "far greater proportion" of VAT than accommodation services.
The papers estimate that a return to 9% for the entire industry would cost the Exchequer around €764 million for the year.
They say that offering the lower rate to food and catering services alone would cost an estimated €545 million.
The Department spokesperson noted that any decisions related to hospitality VAT are a "matter for consideration as part of the Budget 2025 process".
Ukiyo bar and restaurant Dublin. Image: InstagramThe Ukiyo owners said something urgently needs to be done.
“Tourism and hospitality are the lifeblood of employment in our communities, towns and cities,” they wrote.
“If the Government acts now, maybe more of our colleagues will keep their jobs and their businesses.
“To do nothing will mean the death of our industry and a huge blow to the céad mile fáilte that we extend to Ireland’s visitors every year.”
Hospitality
The hospitality VAT was originally reduced to 9% in July 2011 due to the financial crash.
It remained at that rate until 2019 before being reduced again when COVID hit.
The return to 13.5% was announced in last year’s budget and implemented in September.
