Wednesday September 23, 2020

Smaller hotels and restaurants reel at Vat rate hike

While some restaurants and hotels in busy urban areas will be able to absorb the increase, many in regional and rural areas will struggle

Gillian Nelis

Managing Editor

@gnelis
9th October, 2018
Vat rise could be passed on. Pic: Getty

It is hard to over-estimate the anger felt among small, independent restaurateurs and hoteliers about the budget decision to raise the special Vat rate for the hospitality sector from 9 per cent to 13.5 per cent from next January.

Minister Donohoe pointed to the thriving tourism sector to justify his decision. And as anyone who has attempted to make their way down Grafton Street in Dublin or Shop Street in Galway this summer in any kind of a hurry will tell you, there was certainly no shortage of tourists in the country's most popular visitor locations this year.

As a result, hotel room rates - and profits - in many of those locations went through the roof. But it is hard to avoid the conclusion that the Celtic Tiger-style charging decisions of the owners of some hospitality businesses have now resulted in a measure that will disproportionately affect small firms.

Gerard Brady, head of tax and fiscal policy at Ibec, quantified that in a series of tweets on Monday in which he predicted that most of the increase will have to be passed on in prices, particularly in rural areas.

It's bad news for a sector that is struggling to attract staff

"The average restaurant in Ireland turns over €530,000 a year. It pays €305,000 for supplies and operating expenses. Then another €184,000 in wages and payroll. After accounting for year-end stocks it makes €42,000 profit. It can either pass the Vat hike on or take a €24,000 hit to profit," he said.

"Wage pressures rise, insurance goes up, rates go up, someone trips and you have to hire a solicitor. It's curtains. They will have to pass it on."

Higher prices, at a time when consumers are facing rising living costs - particularly in the area of accommodation - will mean fewer customers, and less spend among those customers who are still going out. While some restaurants and hotels in busy urban areas will be able to absorb that, many in regional and rural areas will struggle.

It's bad news for a sector that is struggling to attract staff, is seeing costs such as rent, rates and insurance rise all the time, and is nervous about Brexit.

We are facing, as Paschal Donohoe said during his budget speech, "a new economic reality". That reality is likely to be considerably harsher for many of Ireland's small, local hotels and restaurants as a result of his decision.

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