Reduced VAT rate for NI tourism possible after Brexit, committee says
The government should consider a reduced VAT rate for the Northern Ireland tourism industry after Brexit, a House of Commons committee has said.
The Northern Ireland Affairs Committee has been investigating how the tax system affects tourism businesses.
They face the standard UK VAT rate of 20% while tourism businesses in the Irish Republic pay a reduced 9% rate.
After Brexit the government will not be bound by EU law that generally prevents regional VAT rate variations, MPs said.
"This potentially opens the door to the implementation of a lower rate of tourism VAT in Northern Ireland, without necessitating a more expensive reduction in other parts of the country," the committee said.
However, the Treasury has maintained a consistently sceptical line about the benefits of such a tax cut.
The Financial Secretary Jane Ellison told the committee that she had "not yet seen compelling evidence that VAT alone is a factor" influencing tourist behaviour.
A Treasury official also said it would be wrong to assume the UK would have no state aid obligations when it is no longer a member of the EU.
The Northern Ireland tourism sector has shown consistent growth since the great recession, but is still relatively smaller than the tourism sector in Scotland, Wales or the Republic of Ireland.
In its evidence, Hospitality Ulster, which represents bars, hotels and restaurants, suggested that matching the Republic's 9% VAT rate would create about 8,500 jobs and increase visitor numbers by 16%.
It is estimated that such a cut would result in a direct loss of £70m in foregone tax revenue, but that does not include any indirect gains from increased tourism expenditure.
It is likely that the Treasury would expect any reduction in tax revenue to be matched by a reduction in Northern Ireland's block grant.
The committee says that further analysis is required to allow the Treasury, the Northern Ireland Executive and the tourism industry to reach consensus on the "true cost or benefit to the Exchequer" of cutting tourism VAT.