Hotels warn TDs of impact of following through on VAT plan
TOURISM Government plan to increase VAT on sector to 13.5% in February
Local hoteliers have called for a retention of the low VAT rate for the tourism sector as they face "growing economic challenges".
In an open letter to Cavan-Monaghan TDs, Tony Walker, Vice President, Irish Hotels Federation urged them to support in the campaign to keep the nine per cent tourism VAT rate.
The government had only reduced the VAT from 13.5% on a temporary basis and intended to revert to that rate from February 28, 2023.
This letter is the latest push by the sector's lobby group, having met with politicians in Dublin last month for a ‘Tourism Jobs & Recovery’ briefing session.
Mr Walker, who also manages the Slieve Russell Hotel in Ballyconnell, said it is "essential" the Republic does "everything possible to secure the long-term, sustainable recovery of Irish tourism".
"This is crucial at the current juncture as we grapple with record levels of inflation, skyrocketing business costs and a global economy that is edging towards recession. We must ensure nothing is done that would undermine the recovery, such as increasing consumer taxes on tourism and hospitality.
"Simply put, the proposed 50% increase in tourism VAT next year makes no sense during a cost-of-living crisis. It would only add to inflation and undermine local tourism businesses, which are heavily dependent on consumer sentiment and the domestic market."
He notes that the tourism sector supports "some 5,000 jobs throughout Cavan and Monaghan, generating €138m in tourism revenues annually".
He claims that nationally, during two years of Covid the hotels sector lost over €5 billion in revenue, and hotels are yet to fully recover from that setback.
"Overall occupancy levels this year are significantly down compared with 2019 and overseas tourism is expected to be down 25% on pre-pandemic levels. A full recovery is likely to be delayed until 2026, and it will be further impacted by a softening in demand as a result of downturns in the global economy."
Like the rest of the economy he details some of the impacts for the energy crisis on hotels with many reporting "increases of upwards of 300% in energy bills compared with 2019 levels".
"It is not just energy hikes that are hitting hotels and other tourism businesses – we have faced escalating increases across our entire cost base this year. Hotels are reporting average increases of 25% in the cost of food supplies, beverage costs up 16%, linen and laundry costs up over 30% and insurance costs up 18%.
He therefore argues that the Government's plans to increase the tourism VAT rate to 13.5% would mean "a 50% increase overnight" on the amount of VAT currently paid by Irish consumer and overseas tourists, and would "make Ireland an outlier" amongst countries in Europe.
"The looming increase in VAT means that Irish consumers and overseas visitors would be paying Europe’s third highest tourism VAT rate, putting us at an enormous competitive disadvantage as we seek to recover tourism levels and restore employment.
"If safeguarding tourism and regional employment is the priority, then raising the tourism VAT rate would be a serious policy error detrimental to the long-term prospects for our industry as Ireland’s largest indigenous employer.
Concluding his open letter, Mr Walker asserted: "Now is not the time to jeopardise the recovery by increasing taxes on Irish consumers and overseas visitors."
The IHF open letter to TDs in full reads:
Dear Deputy,
I am writing on behalf of Cavan and Monaghan hoteliers, representing 32 local businesses. We wish to highlight the growing economic challenges facing our sector over the next 12 months and to seek your support for retaining the 9% tourism VAT rate.
As a country, it is essential that we do everything possible to secure the long-term, sustainable recovery of Irish tourism. This is crucial at the current juncture as we grapple with record levels of inflation, skyrocketing business costs and a global economy that is edging towards recession. We must ensure nothing is done that would undermine the recovery, such as increasing consumer taxes on tourism and hospitality.
Simply put, the proposed 50% increase in tourism VAT next year makes no sense during a cost-of-living crisis. It would only add to inflation and undermine local tourism businesses, which are heavily dependent on consumer sentiment and the domestic market. In addition to the negative impact on overseas visitors, a particular concern is the effect that increased taxes would have on Irish consumers including the vitally important wedding market which underpins so many local hotels.
Supporting tourism jobs
Tourism and hospitality businesses are collectively our largest indigenous employer. Prior to the pandemic, our industry supported over 270,000 livelihoods including some 5,000 jobs throughout Cavan and Monaghan, generating €138m in tourism revenues annually for our local economy.
Since the lifting of Covid restrictions earlier this year, we have seen a welcome upturn in tourism. Some of this is tentative having been boosted by short-term factors including high levels of pent-up demand during the summer and hotels catering for a large amount of displaced business previously contracted for 2020 and 2021. The recovery to date has enabled us to make enormous progress in restoring employment and we are now supporting over 240,000 tourism jobs – almost 90% of our previous 2019 levels.
Uncertain Economic Outlook
Most hotels and guesthouses, however, are still recovering having come out of an exceptionally challenging two years of Covid during which time the hotels sector alone lost over €5 billion in revenue. Overall occupancy levels this year are significantly down compared with 2019 and overseas tourism is expected to be down 25% on pre-pandemic levels. A full recovery is likely to be delayed until 2026, and it will be further impacted by a softening in demand as a result of downturns in the global economy.
From a tourism perspective, the rising cost of living – both at home and internationally – means we are facing a potential tipping point with consumer confidence reaching decade lows. Reduced disposable income will inevitably have a negative impact with potential guests and visitors less likely to spend money on discretionary items such as holidays and breaks away. Tourism and hospitality is particularly vulnerable and will be first to take the hit.
At the same time, the energy crisis is having an enormous impact on tourism and hospitality with many hotel businesses seeing increases of upwards of 300% in energy bills compared with 2019 levels. It is not just energy hikes that are hitting hotels and other tourism businesses – we have faced escalating increases across our entire cost base this year. Hotels are reporting average increases of 25% in the cost of food supplies, beverage costs up 16%, linen and laundry costs up over 30% and insurance costs up 18%.
9% Tourism VAT
This is why the tourism VAT is so important given the impact any increase would have on spend by Irish consumers and on our attractiveness to overseas visitors. To date, the 9% VAT rate has supported the creation of tens of thousands of jobs and is the right rate for tourism in the context of the EU, bringing us in line with our main European competitors. Far from being an exceptional measure, most European countries have a low VAT rate on tourism accommodation.
What we see is that those countries that place a high value on tourism as part of their economy, tend to have lower tourism VAT rates. For example, of the 27 EU countries, the VAT rate on accommodation is 9% or lower in 16 countries. In these countries it is settled policy to support tourism with a lower VAT rate as its contribution to tourism jobs, businesses and the wider economy pays its way many times over.
In light of the turbulent times ahead, it is therefore very worrying that Government plans to increase the tourism VAT rate to 13.5% at the end of February next year. Such a move would mean a 50% increase overnight on the amount of VAT currently paid by Irish consumer and overseas tourists – a decision which would make Ireland an outlier amongst countries in Europe that prioritise tourism.
The looming increase in VAT means that Irish consumers and overseas visitors would be paying Europe’s third highest tourism VAT rate, putting us at an enormous competitive disadvantage as we seek to recover tourism levels and restore employment. This is the last thing the Government should contemplate at a time of record levels of inflation and a cost-of-living crisis. If safeguarding tourism and regional employment is the priority, then raising the tourism VAT rate would be a serious policy error detrimental to the long-term prospects for our industry as Ireland’s largest indigenous employer.
On behalf of hoteliers throughout Cavan and Monaghan and our wider local tourism community, we are urging local TDs to support our call on the Government to retain the 9% VAT rate. This should be part of a concerted effort to bed down the recovery and safeguard tourism businesses and livelihoods. Now is not the time to jeopardise the recovery by increasing taxes on Irish consumers and overseas visitors.
Yours sincerely,
Tony Walker
Vice President, Irish Hotels Federation