The Government must return the VAT rate on restaurants and pubs to 9% to avoid further closures in the industry, a Fine Gael senator has said.

In 2011, the VAT rate for hospitality was reduced to 9% and then raised in 2018 to 13.5%.

During the pandemic, the VAT rate on hospitality was cut once again from 13.5% to 9% as profits in the sector plummeted due to COVID restrictions.

Last year, the rate returned to its original level of 13.5% and a number of businesses said it meant jobs were at risk.

The issue was raised at a meeting of the Fine Gael Parliamentary meeting this week and Taoiseach Leo Varadkar said it would be possible to cut VAT for restaurants and pubs, while maintaining the current rate for hotels. 

There has been a spate of restaurant closures across the country in recent weeks and the Restaurants Association of Ireland has called on the Government to take "immediate action".

Solution

Speaking to Breakfast Briefing, Fine Gael Enterprise spokesman Garret Ahearn said he favoured reducing VAT for restaurants and pubs - but not hotels. 

“We can split it and that’s what we should do,” he said. 

“I often say to people, we don’t have the luxury in rural Ireland, in Tipperary, of having a Six Nations Game this weekend or having Taylor Swift deciding she wants to play in Cashel. 

“But what we have is we have a really good tourism sector where rural towns do well and we have a fantastic local economy where people want to support their restaurants, their pubs and their hotels. 

“But we just need to give them a break and recognise that their challenges are different.” 

Business closures

Senator Ahearn said many small businesses are finding it difficult to make a profit because of rising costs.

He also recognised that increases to the minimum wage and the introduction of paid sick leave had further eroded their operating margins. 

“There’s two very good restaurants in Tipperary town, quite close to where I’m from that closed last week, that was 25 job losses in the town,” he said. 

“The majority of them [lived] within 5km to 10km of the town, that has a real impact on a rural town and on the hinterland of the area.” 

Hotels

Senator Ahearn said there is no question the cut should apply to all hospitality businesses and hotels should continue to pay VAT at 13.5%.

“If you’re looking to book a room in a hotel in Dublin for an event, whether it’s a Six Nations Match over the next number of weeks, or whether it’s a concert, you’re paying an awful lot of money,” he said. 

“Hotels are doing extremely well and profiting quite well from that.” 

Senator Ahearn said many of his colleagues were “very supportive” of the proposal. 

Main image: Diners eating lunch.