Hoteliers have offered a "guarded welcome" to the business supports announced in Budget 2023 while calling on the government to reconsider its decision not to extend the 9% rate of VAT for hospitality businesses beyond next February.

Denyse Campbell, president of the Irish Hotels Federation, said the sector feels that the government has missed an opportunity to support employment recovery and growth in tourism, and that the decision to restore VAT to 13.5% does recognise the importance of tourism to Ireland.

"This increase will make Ireland’s tourism VAT rate the second highest in the European Union, and far above other European countries where tourism is a significant part of their economies, such as Portugal (6% Tourism VAT), Turkey (8%) and Malta (7%)," Campbell said.

“Hoteliers and the tourism industry believe that 9% is the right VAT rate for long-term sustainable growth. Our industry has made great progress on restoring over 230,000 tourism jobs since the depths of the pandemic.

"We will continue to advocate for the retention of the 9% VAT rate beyond March 2023 and make the case for a labour-intensive industry that employs people in all parts of Ireland, including 70% outside Dublin."

In Association with

Campbell said the sector broadly welcomed the Temporary Business Energy Support Scheme (TBESS), worth up to €10,000 per month to eligible businesses, with hotels having seen increases of up to 400% in the price of electricity since 2019.

She added that hoteliers will seek an amendment to criteria for significant employers so that they can receive appropriate supports.

Declan Taite, Managing Director Restructuring at Kroll Ireland, commented that the decision not to extend the 9% VAT rate is a major challenge for the hospitality sector.

"If the increase is passed on to consumers, it could significantly impact footfall. If businesses absorb the increase, it raises the likelihood of insolvencies as the sector grapples with rising interest rates, supply chain constraints, staff shortages and increased demands for wage increases.

“Additionally, tax warehousing through Revenue was a key tool used to protect the hospitality industry against the myriad challenges faced over recent years. The decision to end the scheme will inevitably increase the number of companies seeking to restructure, and will likely see an uptick in the number of insolvencies in the coming months.”

Taite added: “The hospitality sector is still in recovery mode after two years of disrupted trade. These additional cost burdens increase the potential for insolvencies and SCARP applications over the coming months”

VRT reprieve

Elsewhere, the Society of the Irish Motor Industry (SIMI) welcomed the decision not to increase VRT for cars or commercial vehicles and the extension of the electric vehicle SEAI grant scheme into next year.

"SIMI is pleased that the dovernment listened to the industry and did not increase VRT in Budget 2023," said Brian Cooke, director of SIMI.

"In addition, the extension of the EV car SEAI grant scheme for the first half of next year will bring more potential buyers into the Electric Vehicle project, although the signal that this grant will be reduced from July is a concern.

"We hope the government can re-consider this closer to the time, as any reduction could undermine sales in what is still the early stages of the EV project.

The decision to offset the increased carbon tax of €48.50 per tonne with a reduction to zero of the National Oil Reserves Agency levy means that the price of petrol and diesel will not be affected by Budget 2023.

Rainy day welcome

Paul Lynam, director of policy and deputy director general at the British Irish Chamber of Commerce, has welcomed the decision to replenish the rainy day fund with a total of €6bn in corporation tax receipts by the end of 2023.

The Chamber also welcomed the €238m allocated from the Brexit Adjustment Reserve to the agri-food sector aimed at supporting farmers weathering Brexit and inflation, with Lynam saying the move was something the group's members had long requested.

“Despite these positive aspects, the Chamber remains concerned over the lack of some important measures aimed at keeping Ireland competitive in an increasingly challenging global stage," Lynam added.

"Given the volatility of the sterling, additional supports should have been announced for exporters, who heavily rely on the UK market for business. Ireland exported €18.1bn worth of goods to the UK in 2021 alone.

He went on to say the raising of the entry rate for the top rate of income tax to €40,000 was "not enough to make Ireland a location of choice for young talent, especially amongst higher income earners.

“Above all, ahead of the imminent debate in the UK over the Northern Ireland Protocol Bill, Budget 2023 fails support critical areas like trade diversification and greater collaboration between Ireland and the UK,” Lynam stated.

R&D credit reform

Deloitte, meanwhile, welcomed the decision to extend the Knowledge Development Box, which encourages the development of intellectual property in Ireland with an effective corporation tax rate of 6.25% on qualifying assets.

Cathal Noone, tax partner at Deloitte, said uptake of KDB had been low due to restrictive requirements and that continuous reform would be required to ensure it remains fit for purpose.

Noone also welcomed proposed amendments to the repayable element of the 25% R&D credit.

"The R&D credit has proved immensely successful in recent years in incentivising increased spend and innovation by Irish companies," he stated.

Photo: Ministers Michael McGrath (left) and Paschal Donohoe. (Pic: RollingNews.ie)