Call on Minister for Finance to deliver support package for drinks and hospitality sector, including reduction in VAT on on-trade alcohol, in July stimulus as UK announce huge stimulus package – ‘Ireland needs to follow suit with creative and proactive proposals,’ according to industry representatives
- On-trade sales applies to alcohol sold in pubs, in addition to restaurants and hotel bars
- Measure sought as support policy to help businesses meet the 50% short fall in trading due to Covid and not intended as a demand stimulus
- Existing huge tax wedge on on-licenced sector – primarily SMEs – is ‘unsustainable’ and ‘unjustifiable’ in current Covid trading conditions
- Over one quarter of alcohol revenues generated by on-licence sector taken by Government each year – over €1.6bn (28%) expenditure on on-licence alcohol was collected in tax in 2019, €1.04bn of this on VAT – DCU Economist report
- Large expenditure tax burden is in addition to other business taxes like income tax, USC, PRSI, profits tax and state determined fees such as licences and commercial rates
- Temporary cut in VAT on on-trade alcohol in July stimulus programme would support and safeguard up to 50,000 jobs and a network of 7,000 businesses as the drinks and hospitality sector builds up its trade over the coming months
- Donall O’Keeffe, CEO, LVA: This is a new ask which has never been considered in Ireland and is achievable and easy to implement quickly
An amended European directive gives the new Government power to apply and extend a lower hospitality VAT rate to on-trade alcohol sales (pubs, restaurants, hotel bars), according to the Licenced Vintners Association (LVA), Vintners Federation of Ireland (VFI) and Ibec representative group Drinks Ireland.
The group is calling for a temporary reduction in the hospitality VAT rate; and extending it to apply to alcohol sales in the on-trade (pubs, restaurants, hotel bars), until 31 December 2020 as part of the July stimulus package currently being negotiated by Government. The measure is being sought to support pubs – 7,000 businesses nationwide – and particularly rural pubs, as they begin their long and slow road to recovery after lockdown in what will be a difficult trading period in the months ahead.
The group said the sector could, with the right support, help drive Ireland’s economic recovery after the Covid lockdown. Despite pubs being one of the hardest and longest hit sectors during the lockdown, and one of the highest taxed, they are working hard to get back up and running as soon as possible.
Unsustainable tax wedge
A report commissioned by the Group and authored by DCU Economist Anthony Foley states that over one quarter of alcohol revenues generated by the on-licence sector are taken by the Government in the form of expenditure tax each year.
Personal expenditure on on-licence alcohol was €5.677 billion in 2019. Of this, over €1.6 billion, or 28 percent, was taken by the Government in expenditure tax. This tax bill is in addition to other businesses taxes such as income tax, Universal Social Charge (USC), PRSI, profits tax and state determined fees such as licences and commercial rates.
This huge tax burden is now ‘unsustainable’ and ‘unjustifiable’ and must be reviewed to reflect the current Covid trading conditions, said Padraig Cribben, Chief Executive, VFI.
‘Rural pubs, which represent many small businesses will be under severe pressure as the new trading conditions and government guidelines on social distancing and reduced capacity make meeting business costs an impossible challenge. These are businesses which employ significant numbers and add to the vibrancy and life to our cities, towns and villages – something that has been deeply missed during lockdown. They need a short-term stimulus to get through the next few months until trade picks up. Our ask for a reduced VAT rate on on-trade alcohol is one that can be done with relative ease and will provide an immediate impact’, he said.
The report also found that on-trade pub alcohol sales will decline by 50% or more for the second half of 2020 and that this was the most optimistic market expectation.
EC VAT directive
Reduced rates of VAT for hospitality activities and other labour-intensive activities are long-established policy instruments in both Ireland and internationally to support economic activity. An amended European Commission Directive makes it possible to extend and apply a lower VAT rate on on-trade alcohol in Ireland. Some EU member states including Italy, Spain and Cyprus have implemented reduced VAT rates for on-licence consumption to support businesses as a Covid measure.
Today, the UK announced a package of measures to support the hospitality industry, acknowledging the enormous contribution it makes to the UK economy.
‘Ireland needs to follow suit with the UK in terms of bringing forward creative and proactive proposals that are tangible to protect our drinks and hospitality industry. A temporary reduction in the hospitality VAT rate, extending it to on-trade alcohol sales is such a proposal and we’re calling on the Minister for Finance to deliver, ‘ Mr Cribben said.
Donall O’Keeffe, CEO, LVA said:
‘We are seeking a temporary reduction in the on-trade VAT rate on alcohol as a support measure to help businesses meet the 50% short fall in trading due to Covid. This is for businesses and is not intended as a demand stimulus which VAT rate changes tend to be. This is a new ask which has never been considered in Ireland and is achievable and easy to implement quickly, at a time when this industry is under pressure to operate, with reduced demand and increased costs. Ireland’s VAT rate on alcohol is already significantly higher than EU averages.’
Patricia Callan, Director of Drinks Ireland said:
‘The Government should grasp the opportunity to support the on-licenced sector efficiently and effectively by lowering the VAT rate on on-licenced alcohol sales, one made possible by an amended European Commission Directive. Now is the time for innovative and ambitious policy decisions for industries that are vulnerable yet enormously viable but only with tangible support. The drinks and hospitality industry is an employment intensive sector, particularly regionally, and needs support.’
The policy ask is part of the ‘Protect our Pubs’ campaign by LVA, VFI and Drinks Ireland which seeks to highlight the important social and cultural role that the drinks and hospitality industry play in our communities and to demonstrate the loss that would be felt should some pubs not reopen due to Covid-19.
Download a copy of the report here and follow the Protect our Pubs campaign at #NewGovProtectourPubs