Further extension of 9% tourism VAT rate not expected

Extending the 9% VAT rate for the tourism and hospitality sector beyond March next year is not envisaged by the Tax Strategy Group.

One of today’s Tax Strategy Group papers outlines some of the VAT options open to the Minister for Finance.

The Government agreed in May this year to extend the 9% VAT rate that currently applies to the tourism and hospitality sectors for a further six months, until the end of February 2023, at an additional estimated cost of €250m.

“No further extension to this measure is envisaged so the 13.5% rate will apply to these sectors from 1 March 2023,” the papers state.

Adrian Cummins, CEO of the Restaurants Association of Ireland, said the 9% VAT rate must stay in place due to the ongoing cost of living and energy crises.

Speaking on Drivetime, he said the hospitality industry had been hit the hardest by Covid-10 and if the rate of VAT rises to 13.5%, this would be a 50% increase and make Ireland the second highest in the EU for this rate.

Mr Cummins said that hospitality is a low margin business, highly labour intensive and there is peak cost inflation in the sector: “Now is not the time to change the rate.”

He said that nobody wants to see a business going bankrupt and his aim is to try to protect small businesses and employees.

Mr Cummins said such a move would be nonsensical and illogical.

Non-Oral Medicines

Meanwhile, Ireland can now expand the zero VAT rate that currently applies to certain oral medicines to cover non-oral medicines, including injections, infusions, liniments, ointments and transdermal patches.

The Tax Strategy Group estimates the cost of this measure is approximately €145m a year.

According to the TSG paper on VAT, the Department of Health has suggested that all non-oral medications on the HSE’s formal reimbursement list benefit from a zero VAT rate.

The Department of Health notes that this would be in line with the Programme for Government which contains a commitment “to reduce the cost of medicines, including via generic prescription, where appropriate, and to set a fair price for drug reimbursement”.

The Department of Health also notes that Ireland’s national tobacco control policy, Tobacco Free Ireland, contains a recommendation to advocate for the removal of VAT on Nicotine Replacement Therapy.

Period products

The Tax Strategy Group has said the cost of applying a zero VAT rate on period products such as menstrual pants, menstrual sponges and menstrual cups “is likely to be negligible”.

These remain a tiny fraction of period products sold and a zero rate already applies to most period products such as tampons and sanitary pads.

Retrofitting materials

The Minister for Environment and Climate Change has suggested that the rate of VAT applying to materials, equipment and devices used in the process of retrofitting buildings to improve their energy efficiency such as insulation materials, heat pumps, solar panels and batteries, solar thermal panels be reduced. Currently a number of different rates apply to these products.

According to the Tax Strategy Group, the lowest rate that can be applied for the supply of such products is a zero rate.

It also says that it is possible for Ireland to apply the 9% reduced VAT rate to the supply and construction of housing, as part of a social policy and to the repair and renovation of residential housing.

However, it says having two separate VAT rates applying to construction services could introduce significant complexity to the sector and risks possible
underpayments of VAT.

Bicycles, Newspapers

Representations have also been received in relation to other products and services. A number of representations have been received seeking to apply a reduced VAT rate for bicycles, which currently have a standard VAT rate applied.

According to the TSG, the estimated cost of reducing the VAT rate on bicycles to 13.5% is €6 million.

Representations have also been received requesting that the reduced rate applying to newspapers and periodicals have a zero rate applied, reduced from the current reduced rate of 9%.

The TSG said the estimated cost of a applying a zero rate of VAT to newspapers and periodicals is €41 million.