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Industry calls for cuts after Ireland drops VAT rate for tourism businesses

18 May 2011 by
Industry calls for cuts after Ireland drops VAT rate for tourism businesses

Hospitality industry heavyweights have renewed their call for a reduction in the rate of VAT for hotels, restaurants and pubs, a week after the Irish government unveiled proposals to stimulate the economy by dropping the rate from 14.5% to 9% for the sector.

Irish finance minister Michael Noonan indicated that the new rate could be introduced as early as 1 July this year and would run to 31 December 2012. The 9% rate would apply to goods and services relating to tourism, including restaurant and catering services, hotel and holiday accommodation, and printed matter such as brochures, maps and programmes.

Tim Martin, founder and chairman of pub chain JD Wetherspoon, said the move strengthened the already "irrefutably strong" case for a VAT reduction in the UK, where hospitality businesses pay the full rate of 20%. He called on the Government to act in order to help boost tax take through improved revenues and create new jobs.

"We come from a decade or two of constantly rising consumer expenditure, which is a hugely important pillar of the economy. Incomes are going down now and in order to compete with France and Ireland and other countries we have to follow suit," Martin told Caterer.

"It is impossible for Britain to be a very high tax economy in the hospitality and tourism business and to thrive as a nation."

Martin's words were echoed by British Hospitality Association chief executive Ufi Ibrahim, who said: "The Irish are giving an example of a government that understands that pricing is important to the future of tourism. They realise that reducing VAT on hospitality has the potential to kickstart the economy.

"This action backs up our message that the industry has a huge part to play in the recovery. We'll be taking the same message to Holyrood and the Welsh Assembly. By reducing VAT on hospitality there will be real economic benefits."

Meanwhile, Guy Parsons, Travelodge chief executive, said: "This is great news for tourism in Ireland. The Irish government has acknowledged that reducing VAT on hotels and restaurants will stimulate its economy. I do hope this action acts as a catalyst to speed up our government's decision to reduce VAT."

"One of the biggest complaints that people have, both in the UK and abroad, is that our hotels are too expensive. As an industry we have to prove that Britain is open and willing to take business at a reasonable price; especially with the Olympics fast approaching. Otherwise my fear is that we will be left behind and lose out in the long term."

Despite the calls, the UK Treasury said there were no plans to introduce a similar reduced rate of VAT for hospitality and tourism businesses here. A spokesperson said: "It wouldn't be possible to simply offer a blanket VAT cut for ‘the tourism industry'. In principle it would be possible to introduce reduced rates of VAT for some of the services that are often used by tourists. The main suggestions are usually reduced rates for hotels, restaurants and entrance to visitor attractions.

"Any such reduced rates would entail very significant revenue impact and as a significant proportion of spending in these areas (eg, eating in restaurants) is by UK residents, any increase in activity in these areas would largely be at the expense of other consumer spending. Any claim that a boost to foreign tourism would outweigh these effects would need to be looked at very carefully indeed."

What the reduction will cost Ireland
If introduced on 1 July this year as planned, the new rate of VAT in Ireland is expected to cost €120m for the remainder of 2011. In subsequent years, it is expected to cost €350m for each full year, until its scheduled end in December 2013. However, there are so far no indications as to how much the reduced rate is expected to contribute to the economy in increased trade and employment.

What Europe pays
The VAT rate for restaurants and hotels is considerably lower in many other European countries, particularly in France, where a much-reduced rate was introduced following a now-famous campaign by restaurateur Jacques Borel

â- Belgium has reduced VAT for restaurants from 21% to 12%
â- Germany has reduced VAT for hotel accommodation from 19% to 7%Ireland cuts VAT for hotels and restaurants to 9%

Ireland cuts VAT for hotels and restaurants to 9% >>By Neil Gerrard

E-mail your comments to Neil Gerrard here.

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