A senior European Commission official believes that the government should scrap the tourist industry’s 9 per cent VAT rate if it wants additional scope to invest in the economy.
Michel Servoz, the director-general of employment, social affairs and inclusion, said that Ireland needed to broaden its tax base to invest more in capital infrastructure projects. The best way of broadening the tax base was to remove a number of “exemptions and derogations” in Irish tax law, he said.
He called for the VAT rate, which was introduced to stimulate activity and support employment in the hospitality and tourism industries, to be scrapped if there was evidence that the proceeds were no longer being passed on to consumers or supporting jobs.
“We believe in the commission that some of what we call tax expenditures, [which] are basically exemptions or derogations from the tax rules, should be reviewed,” he said.
“This would give the ability to broaden the tax base. If I can take one example, I understand that there is a special VAT rate of 9 per cent for tourism and I think it was invented to create more jobs in this sector. Perhaps it’s time to reconsider it because that’s a [potentially] important increase in revenue. After all we are talking about Chinese tourists paying this VAT rate, right?”
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Michael Noonan, the finance minister, slashed the tax rate from 13.5 per cent to 9 per cent in July 2011 as part of the government’s efforts to boost employment at the height of the downturn. Announcing the budget in October 2015, Mr Noonan said that the initiative had been a success but warned that the case for retaining the reduced rate was diminishing in Dublin. He decided to keep the rate, as it was still needed in other regions.
The 9 per cent rate was retained again in the 2017 budget but Enda Kenny warned that it could be scrapped if the benefits weren’t passed on to the consumer.
A spokesman for the Irish Hotels Federation said it was important that the reduced rate was retained, given the return it had given to the state: “The 9 per cent VAT rate measure continues to be one of the most successful job creation initiatives in modern times, helping to create more than 50,000 new jobs since 2011. It has brought Ireland more closely in line with tourism VAT rates across the rest of Europe, helping to level the playing field when competing with other international destinations for visitors.”
Last week the European Commission encouraged the government to increase its investment in infrastructure. Mr Servoz said that the government could attract private investment to complement public funds as a way to ramp up its capital investment plans.