Restaurants group reiterates calls for permanent restoration of 9% VAT rate ahead of October Budget
Cummins, The Restaurants Of Chaney/collins Gareth Ireland Adrian Association Of Ceo Photo:
The chief executive of the Restaurants Association of Ireland (RAI) has reiterated calls for the 9% VAT rate to be reinstated for the hospitality industry, warning of mass closures across the sector if the current rate of 13.5% is maintained.
In its pre-budget submission, the lobby group cited a recent survey in which almost three-quarters of its members said they do not expect their business to be open this time next year if the 9% VAT rate is not reintroduced.
In addition, two-thirds of members said they would have already closed their business if it was not for the ongoing campaign for the 9% rate reinstatement.
"Budget 2025 will be the ‘Budget of VAT9’ for the entire hospitality industry and, as such, how positively or negatively the Budget will be assessed will hinge solely on the Government’s decision surrounding VAT on food," said RAI chief executive, Adrian Cummins.
The Irish Examiner reported last week that a restoration of the 9% VAT rate, which was introduced during the pandemic to help the struggling hospitality sector and extended to offset rising inflation and cost of living pressures, is considered unlikely, despite Fine Gael's lobbying for the move.
While Fine Gael's Enterprise Minister Peter Burke has signalled his intention to fight for the lower rate, it is understood that Finance Minister Jack Chambers is not keen on the idea due to its estimated cost of €535m.
Within Government, there is also some belief that it would be a mistake to give a tax break to restaurants, hotels, and pubs while inflation is below 2%.
However, despite falls in inflation, the RAI said the restaurant sector is in a "different situation."
"It is facing severe business challenges on the cost and labour market front, it has limited consumer pricing power given the very competitive nature of the sector and it is operating in an environment where consumer discretionary spending is under pressure from the overall escalation of the cost of living and high interest rates," the group said.
The RAI added that it was "critically important" that a permanent VAT rate of 9% is introduced for the sector.
Noting the €535m price tag, the RAI said a splitting of the VAT rates of the food and accommodation elements, which would allow food services to return to 9% VAT while accommodation would remain at 13.5%, is technically possible.
The RAI estimates that between September 2023 and April 2024, there were 470 food-led business closures.
"Analysis conducted by Jim Power Economics suggests that the closure of one restaurant could cost the economy €1.36m in total economic impact," the group said.
"On this basis, the closure of 470 restaurants would have an economic impact of up to €640m. This economic impact should be offset against the cost of the lower VAT rate."
In addition to VAT restoration, the lobby group is also calling for the inclusion of SME representation in key bodies such as the Labour Employer Economic Forum, as well as a renewed promotion of food tourism.
The group is also urging for a review of the methodology behind the proposed calculation of the living wage and has said that the appropriate increase in the national minimum wage should be "no greater" than average inflation.