Pending 9% VAT rate for food and catering sectors to cost €675m

Restoring the 9 per cent VAT rate for food and catering, as Minister for Finance Paschal Donohoe has signalled is his intention, will come at a “significant cost” of €675 million per year.

Fine Gael pledged to cut the VAT rate for the hospitality sector to 11 per cent during last year’s general election campaign.

This followed a decision in the budget just months earlier not to make any change despite extensive lobbying from the sector.

Responding to the Fine Gael campaign pledge at the time, Fianna Fáil leader Micheál Martin said his party did not “rule anything out” in terms of supporting a VAT change.

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The rate was previously cut to 9 per cent to support such businesses – and the wider hospitality sector – during the pandemic before being restored to 13.5 per cent.

Speaking in the Dáil on Thursday, Mr Donohoe said any change to the VAT rate for the sector will likely be concentrated on the food and catering sector.

“I absolutely appreciate the value of the 9 per cent hospitality rate and the help it can offer to the hospitality sector,” he said. “I understand that is the rate that can have the biggest effect.

“I want to confirm what my intention is as regards the VAT rate, but indicate that this decision should be taken on budget day. Because it will be taken on budget day, any effects will be felt in the following year, from January 1st.”

He said the timing “relates to the fact that it will be a very significant move”.

“It is of course my intention to be able to deliver such a move, but such a move does entail a very significant cost, which is why it needs to be part of the overall budget process,” he said.

“If a move is made – and my view is that when we decide the scope of that move, it should be concentrated in the food and catering sector – its overall cost in a full year will be €675 million.

“As to what that VAT rate will be applicable to, my view is that it can have the biggest impact on food and catering.”

Expansion beyond that “would entail additional significant cost, and it is because of all this that we need to make those decisions as part of the normal budgetary process”, he added.

“We cannot be spending hundreds of millions of euro and even more outside of the normal budgetary decisions we make because of the risk and the uncertainties around us.”

In a statement on Friday, the Department of Finance said the Government “must balance the costs of the measures in question against their impact and the overall budgetary framework”.

“In recognition of the needs of SMEs in the hospitality sector, the Programme for Government does commit to bring forward measures to support SMEs, in particular in the retail and hospitality sectors,” it said.

“It acknowledges the increased cost pressures on these sectors and states that this will entail changes to VAT, PRSI and other measures.

“The programme makes it clear that these measures will be implemented as part of the normal budget process. This process will consider the timing of any VAT change as well as its scope.”

The Licensed Vintners Association, which represents Dublin publicans, said any cut to VAT for food should apply from budget day rather than waiting until January 1st.

“It is very welcome news that Minister Donohoe has confirmed there will be a reduction in the VAT rate for food in the budget to be announced later in the year,” the group’s chief executive, Donall O’Keeffe, said.

“Clearly the industry has been suffering due to cost of business measures imposed by the Government and if they are now taking this step to assist the sector, then the relief provided by this VAT should apply as early as possible.

“There seems very little reason why the Government couldn’t allow the reduced VAT rate to take effect from the day after budget day. Tax rises kick in immediately, why shouldn’t reductions?”

Mr O’Keeffe added that the group would be pressing the Government to reduce alcohol excise.

“While this is obviously positive news for those pubs and hospitality businesses who serve food, it is notable that the rest of the pub trade has also experienced the same difficult, Government-imposed business conditions and they will receive no relief under these proposals,” he said.

“That is why we will be pressing the Government to also reduce alcohol excise in the upcoming budget.”

Last year the Restaurants Association of Ireland estimated an average of two restaurants or cafes was closing each day in Ireland. More than 600 restaurants were forced to close last year, it said.