Department of Finance officials have indicated that there is little hope for tourism and hospitality firms to secure a further extension of the reduced VAT rate of 9% for their sector. The reduced rate, which was implemented to aid businesses in recovering from the impact of the pandemic, is set to expire at the end of next month. The Tax Strategy Group papers reveal that the reduced rate has cost the exchequer €1.2bn, making it a substantial investment in the hospitality and tourism industry. Vat receipts reached €26.7bn last year, a significant increase from €18.8bn in 2021. According to the papers, a 1% increase or decrease in the 9% VAT rate would result in a corresponding annual increase or decrease of €140m.
The Tax Strategy Group papers also highlight discussions surrounding the possibility of raising the overall thresholds for qualifying for VAT. The proposal suggests increasing the thresholds to €40,000 and €80,000 for services and goods respectively, with the aim of alleviating the burden on small businesses.
In relation to corporation tax, the Tax Strategy Group report once again draws attention to the concentration risk posed by a small number of large companies who contribute the majority of corporation tax revenues. Last year, the 10 largest corporation tax payers accounted for €13bn of the total €22bn collected in corporation tax receipts.
It is important to note that the reduced VAT rate of 9% has been a lifeline for many businesses in the tourism and hospitality sector. The extension of this reduced rate was seen as crucial in aiding the recovery of these industries, which have been severely impacted by the pandemic. However, the cost to the exchequer has been significant, with €1.2bn being allocated to support these sectors. As the reduced rate is set to expire at the end of next month, businesses in the tourism and hospitality industry are now facing uncertainty and potential financial strain.
The Tax Strategy Group papers also raise the question of increasing the overall thresholds for qualifying for VAT. Currently, businesses must reach a threshold of €37,500 in turnover in order to be eligible for VAT registration. The proposal suggests raising this threshold to €40,000 for services and €80,000 for goods. The intention behind this proposal is to ease the burden on small businesses and provide them with some relief in terms of VAT obligations.
In addition to the discussion on VAT, the Tax Strategy Group report also focuses on the issue of corporation tax. It highlights the concentration risk posed by a small number of large companies who contribute a significant portion of corporation tax revenues. The report reveals that the top 10 corporation tax payers accounted for €13bn of the total €22bn collected in corporation tax receipts last year. This concentration of tax contributions raises concerns about the stability and sustainability of the tax base.
Overall, the Tax Strategy Group papers shed light on the challenges faced by the government in balancing the needs of businesses, particularly those in the tourism and hospitality sector, with the financial implications for the exchequer. As the reduced VAT rate comes to an end, it remains to be seen what measures will be implemented to support these industries and ensure their continued recovery. Similarly, the concentration risk in corporation tax payments raises important questions about the long-term sustainability of the tax system and the need for diversification in revenue sources. These are complex issues that require careful consideration and strategic planning in order to support businesses and maintain a stable and sustainable economy.