Reduced hospitality VAT rate may have cost Irish state over €600m

General view of a hotel bed Image copyright Thinkstock
Image caption Industry lobbyists say the reduced VAT rate has encouraged sales and employment

A reduced VAT rate for the hospitality industry in the Republic of Ireland may have cost the state more than 600m euros (£440m).

Hotels, restaurants, caterers and other businesses in the hospitality sector have benefited from the reduced 9% VAT rate since 2011.

Industry lobbyists say the rate has encouraged sales and employment.

But figures show the prices charged to consumers in many of these industries have actually risen in the last year.

Figures from the Revenue Commissioners show that if VAT returns had been paid at the full 13.5% there would have been an additional 644m euro (£472m) paid to the state, since 2011.

It is not possible to tell how much of those returns only exist because the rate was reduced.

Irish finance minister Michael Noonan warned the industry last year that the reduced rate would be reconsidered if prices began to rise.

However, the Consumer Price Index shows the cost of hotel accommodation rose by 5.2% between January 2014 and January 2015.

During the same period, hotel sector VAT returns totalled 135.6m euro (£99.5m).

If those sales had been charged at the higher rate, the return to the exchequer would have been an additional 69m euro (£50.6m).

A similar pattern emerged in the restaurant sector, with prices rising by almost 2% in the last 12 months.

During the same period, the Revenue may have lost out on 72m euro (£52.8m) in VAT payments from restaurants.

The Irish Hotels Federation (IHF) warned that the long-term future of the industry could be affected if the rate is returned to 13.5%.

It said tourist numbers have increased from 5.9m in 2011 to 7.3m in 2014 and significant employment has been generated as a result of the measure.

IHF president Stephen McNally said: "The government has to think if they turn off the tap are they at risk of chasing tourists away from the country?

"If you talk to anyone in the industry they will tell you it has worked for them. If the rate is not maintained big questions will be asked about what will happen."

However, the trade union SIPTU has accused the industry of "pocketing" the reduced VAT rate.

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