Ireland's pubs and restaurants are facing a ‘commercial crisis’ if hospitality VAT is not reduced in the budget, a new report has warned.
Groups are urging the Government to split hospitality VAT and re-introduce the lower 9% rate for food services in the upcoming Budget.
The report by economist Anthony Foley warns that average margins for food businesses have been "decimated" in recent years.
It warns that some 68% of restaurants and pubs recorded a fall in business volumes this summer and 84% recorded a drop in profitability.
The report notes that allowing the hospitality to continue to decline could result in "declines in tourism activity across several fronts such as the type of tourist coming to Ireland, the length of stay and numbers of visitors".
It says that food services influence "the attitudes of visitors and the desire to return and to recommend Ireland as a location to visit as well as the overall image of the Irish tourism product” and concludes that, in the absence of measures such as resorting the 9% VAT rate, the sector will experience a significant decline with more closures and job losses.
Ukiyo bar and restaurant in Dublin, which recently closed its doors. Image: InstagramThe report was commissioned by the Irish Tourism Industry Confederation, the Restaurants Association of Ireland, the Vintners Federation of Ireland, the Irish Hotels Federation and Licensed Vintners Association.
A joint statement from their CEOs says the report is "a stark reality" for hospitality businesses.
"It is now essential that the Government does everything possible to assist struggling businesses and put our sector on a more stable footing," they say.
"At a minimum, this must include the reinstatement of the 9% VAT rate for food-related hospitality services in the upcoming Budget."
The groups warn that inaction "poses an enormous risk to our wider hospitality and tourism industry".
Tax receipts
The report says that when operating under the previous 9% VAT rate, hospitality businesses "generated record levels of taxes for the exchequer."
It says net tax receipts from the hospitality sector last year alone reached an all-time high of €1.86bn.
Figures show that, prior to increasing the rate of VAT last September, the hospitality sector was already generating at least €585m in additional taxes for the State on an annual basis compared with 2018, when the rate of VAT was also at 9%.
"As a result of the higher 13.5% VAT rate, it is now estimated that the annual tax take from the
sector will increase to €2.33bn this year, some €1.17 billion higher than in 2018."
The report adds that this equates "a 100% increase in annual taxes".
