Brass tax

Feb 11, 2019
By Cróna Clohisey

The first pay cheques of the New Year will see the average Irish worker about €3 better off per week. However, these new gains could be wiped out with the increase in the rate of tourism VAT with consumers facing heftier bills in restaurants, hotels and hairdressers. The 9% rate introduced in 2011 was reinstated to its original rate of 13.5% from 1 January 2019.

Ireland’s return to the rate of 13.5% means it is one of the highest rates of tourism VAT in the EU. Sixteen out of 19 eurozone countries have a rate of 10% or less while Northern Ireland has just undergone a consultation on whether it should reduce its rate from 20%. Brexit and associated Sterling fluctuations have also been mentioned as a reason for keeping the VAT rate at 9% in Ireland. Yet, visitors from the UK remain strong.

The initial VAT rate drop was a temporary measure and at the time, businesses were warned that they must pass the savings on to customers. Now, tourism is booming and our value for money rating has improved. Tourism accounts for an estimated one in 10 jobs and has created employment opportunities all over the country. Despite good growth in Dublin and other cities, there are reports that rural areas are struggling despite seven years of the reduced VAT rate. A targeted support system to promote Ireland’s Hidden Heartlands and the Wild Atlantic Way, as well as funding to develop our greenways, was announced in Budget 2019. 

Using a reduced VAT rate on an entire sector of the economy to encourage growth now seems to have been a blunt tool. Perhaps the targeted support approach is the right way forward. Time will tell.