VAT rate increase will impact more than just hotels, but material impact on tourism from UK not expected. has been saved
VAT rate increase will impact more than just hotels, but material impact on tourism from UK not expected.
Budget 2019 sees the current VAT rate of 9% increase to 13.5%, with effect from 1 January and has been estimated by the Minister for Finance to generate an additional €466 million in VAT receipts for the exchequer in 2019. The increase will mainly impact hotels, other short-term guest accommodation providers and restaurants, but will also apply to other areas including cinemas, theatres, hairdressers, museums and art galleries. However, newspapers and sporting facilities will remain at the 9% rate which is welcome news for those sectors. Additionally, the 9% rate will apply to e-publications which are currently liable to VAT at the 23% rate.
Commenting on the changes to the VAT rate in the hospitality sectors, John Stewart, Tax Director at Deloitte said:
Critically the increase in the VAT rate will not have any impact on the already high rents being charged in the residential letting market as, in contrast to holiday type accommodation, that accommodation is exempt from VAT.
Increasing the rate impacts all VAT registered business in the affected tourism sectors regardless of their size, location or turnover as VAT rules do not allow for the increased VAT rate to only apply to certain businesses such as large hotels. However, the VAT rate increase will have no impact on non VAT-registered businesses including many of those in the B&B sector where over three times as many B&Bs are not VAT registered. Consequently, the good news for those smaller operators is that, although they did not benefit from the introduction of the reduced VAT rate, they will not suffer any financial cost as a result of the increase in the rate.
The 9% rate was introduced initially for a three year period following a deep recession and has cost the exchequer an estimated €490m in 2017 and €2.6bn in lost VAT revenue since its introduction.
With Brexit looming on the horizon and the resulting uncertainty there is a concern that any change to the VAT rate could negatively impact the level of UK tourists coming to Ireland. However, it is expected that the change in the VAT rate will not have a material impact on the number of UK visitors particularly as almost half of all British tourist stays in Ireland in 2016 did not contribute to the domestic accommodation sector as they stayed with friends and family.
The increase in the VAT rate was expected following a review of the rate by the Department of Finance which stated that demand for hotel accommodation and restaurant services was not expected to be materially affected by an increase in the VAT rate. Furthermore, it is anticipated that the increase in the VAT rate should impact more on profitability of businesses, rather than prices charged to customers. Also, the Department stated that the 9% rate was regressive, benefitting better off households disproportionately more than worse off households.
The retention of the 9% VAT rate for newspapers and the reduction in the rate of VAT on e-publications from 23% to 9%, a saving of 14%, is very good news for the industry, particularly as the sale of newspapers over the internet has increased significantly over recent years while print sales have declined,
Issued of Murray on behalf of Deloitte
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