Finance Department Estimates €867m Cost of Hospitality VAT Cut to 9%
The Department of Finance has estimated that reducing the VAT rate for the hospitality sector from 13.5% to 9% would cost the Exchequer €867 million over the course of a full year.
Breakdown of the cost includes:
- €674.6 million for food and catering
- €134.9 million for accommodation
- €38.4 million for hairdressing
- €19.8 million for entertainment
These figures were published today in the latest Tax Strategy Group documents and are expected to be updated again later this month based on new data from the Central Statistics Office (CSO).
While the Government has indicated there will be €1.5 billion available for tax cuts in the upcoming Budget, the documents raise concerns over the complexity of introducing separate VAT rates for hotel accommodation and meals, especially in bundled packages like bed and breakfast or all-inclusive stays.
The papers warn that different VAT rates within hospitality could:
- Increase the risk of VAT underpayment
- Introduce administrative and operational challenges
- Open opportunities for tax avoidance and manipulation
The hospitality industry has argued that it needs more support due to ongoing economic pressures, including:
- Rising costs from inflation,
- New sick pay regulations, and
- Upcoming pension auto-enrolment
The documents also point out that businesses are not required to pass VAT savings on to consumers in the form of lower prices.
Energy VAT Reduction to Cost €198.3m
The Finance Department also revealed that maintaining the reduced 9% VAT rate on gas and electricity would cost €198.3 million annually. Originally introduced in late 2022 to offset soaring energy prices, the measure has been extended each year and is currently set to expire in October 2025, unless renewed.
Housing VAT Cut Could Cost €805m
A proposed VAT cut on residential construction for social policy purposes—from 13.5% to 9%—would cost the state €805 million, but only if all new builds were classified under social housing.
VAT Reduction on E-Bikes Considered
The documents also show that the Department has received requests to lower VAT on bicycles and e-bikes from 23% to 13.5%.
- The cost of this move would be €8 million
- It would apply only to e-bikes with power under 250 watts
- Scooters and electric scooters would not qualify
- Officials note that retailers are not obligated to pass on VAT cuts to consumers
Income Tax Indexation Could Exceed €1 Billion
Finally, the papers say that indexing tax bands and credits to reflect expected wage growth of 4% next year would cost over €1 billion.
This aligns with a Programme for Government commitment to adjust income tax thresholds to prevent workers from being pushed into higher tax brackets due to inflation.