The hotel sector is expected to be singled out by the Government for an increase in the special lower VAT, according to weekend media reports.
The 'Irish Timees' said that the special 9 per cent VAT rate is anticipated to come to a partial end when Minister for Finance Paschal Donohoe announces his tax and spending package in October.
Under proposals currently being strongly considered by the Government, the full 13.5 per cent rate will only be restored for businesses that sell “accommodation”, such as hotels, guesthouses and bed and breakfasts.
In such a scenario, other businesses – such as restaurants, cafes, hairdressers and various entertainment services – would see their VAT rate remain at 9 per cent.
The lower rate was introduced during the economic crisis to encourage tourism and to boost the hospitality sector. The cost of the rate since its introduction in 2011 has been €2.7 billion.
The programme for government, agreed between Fine Gael and the Independents, committed to retaining the rate as long as “prices remain competitive”.
A full 4.5 per cent increase in VAT for “tourist accommodation” would bring in €208 million, Mr Donohoe’s officials estimate. Extending the increase to restaurants would yield another €183 million.Restoring it across the board, including to entertainment and newspapers, would bring in €527 million.
The mooted move would meanthat a hotel would levy the 13.5 per cent on its bed stays but only 9 per cent on goods in its bars and restaurants.
The Department of Finance also conducted a separate study on the special VAT rate, which was also published last week.
“Positive developments within the 9 per cent sectors suggest that demand and employment are unlikely to be substantially directly affected by an increase,” it says.