No plan to make changes to VAT rate for hospitality, says McGrath

Finance Minister Michael McGrath has said that he is focused on providing tax debt warehousing flexibility and has no plan to make changes to the VAT rate for hospitality in 2024.

Several politicians at a recent private Fine Gael parliamentary meeting called on the Government to consider splitting the hospitality VAT rate and giving the nine percent rate to pubs and restaurants impacted since the rate returned to 13.5%.

Taoiseach Leo Varadkar said the rate would be a matter for the Budget next October.

However, he indicated that it would be possible to split it in to two separate rates and reportedly confirmed that such a reduction “is technically possible and warrants consideration.” 

Speaking in Cork, Minister McGrath said that the comment made by the Taoiseach was uttered in the context of the next Budget.

“The Revenue Commissioners, when I investigated this previously to see what was technically possible, raised concerns about splitting the rates so my focus is on implementing the Budget for 2024 and there are no plans for changes to VAT rates across this year.” 

Tax debt warehousing

Minister McGrath pledged that the Government will have a “flexible” approach to tax which is owed from the period in which the country was grappling with the pandemic.

“We are in the process of finalising changes to the tax debt warehousing regime. I expect to be in a position in the coming days to set out new flexibilities and new arrangements I respect of tax debt warehousing. That is a practical way I can help businesses in terms of their cash flow challenges.

"The Budget is a long way away. We are just at the beginning of February and I am not going to raise expectations about what can or cannot be done in October of this year to come in to effect in January of 2025.

"What I am focused on is providing support for businesses now. We have about €1.7 billion of tax debt warehoused and we are expecting businesses to engage with the Revenue Commissioners to have an arrangement in place by the 1st of May.

"It doesn’t mean that they have to have paid it. It doesn’t even mean that they have to make a down payment. The Revenue Commissioners will be extremely flexible and I will be setting out new arrangements in the coming days that will show a great level of flexibility to support those businesses.” 

VAT reduction 'isn't the answer'

Minister McGrath said that a reduction in VAT “isn’t the answer.”

“The only way a reduction in VAT improves the viability of a business is if that reduction in consumer tax is not passed on to the consumer.

"The issue they (businesses) are raising with me, primarily, is around costs, and generally speaking although January was a difficult time for many, demand has been quite strong in recent months.” 

He added that the VAT rate for hospitality is 8th in European terms, with six other member States having a rate of 12-13 percent.

“14 member states have rates of 12 percent or above, so we’re not out of line. If you take Northern Ireland, Great Britain has a VAT rate of 20 percent.

"The Government has to reflect on the accumulation of costs imposed on businesses, many of them through direct Government policy decisions.

"The aggregation of them have undoubtedly had a significant impact on many businesses and has coincided with a period for many where trading conditions are very challenging.

"For now, it’s about what we can do to help businesses in the short-term and we will be bringing forward measures on the tax debt warehousing that can be of help," he said.