The current Vat rate, which covers 20,000 businesses is scheduled to increase from 9% to 13.5% from midnight tonight (31st).
The Restaurants Association of Ireland has condemned the move, warning that low margin restaurants, cafes and food led pubs won't be able to withstand the increase.
The reduced Vat rate of 9% was originally introduced as a measure to ease the pressure on businesses during the various lockdowns as a result of the Covid-19 pandemic. The reduced rate was originally meant to expire in February of this year, but the Government extended it for six months as part of a cost-of-living package.
Chief executive of the RAI Adrian Cummins has said that the increase will "add to consumer inflation at a time when Government announced it wouldn’t add to the cost of living", as well as moving Ireland to the second highest hospitality vat rate within the EU, significantly decreasing Ireland's competitiveness as a tourist destination.
Speaking to The Examiner earlier this summer, Cummins anticipated that while it will be up to individual businesses how they respond to the increase, he expects that restaurants in urban areas may pass on the extra cost to consumers.
“What I can see from the reaction to business owners is, predominantly in rural businesses there will be a price resistance to the passing on of it [cost], where in large urban areas, I think it will be passed on substantially.”
“That’s on a case-by-case basis, we as a trade association cannot tell our members what to do.”
In an additional statement, Cummins warned the Vat change is coming at the wrong time and may be the "nail in the coffin" for many Irish businesses:
“The increase is wrong at a time when the country needs to reduce inflation, a vat increase only adds to inflation. Government need to restore the 9% Vat for Food related Hospitality businesses in Budget 2024 and we will me making the case for this when we meet with the Minister for Finance next week. The increase the vat rate is the final nail in the coffin for many small cafes, restaurants and food led pubs.”
Cummins also said that the battle to maintain the 9% rate would be part of forthcoming negotiations for Budget 2024.
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