Ireland's VAT rate for holidays was reduced from 13.5 per cent to nine per cent in July 2011 in a bid to stimulate growth across the sector and create an extra 10,000 jobs in the industry and a further 3,000 in the supply chain.
Michael Vaughan, president of the Irish Hotels Federation said the reduction had 'provided a vital stimulus for hotels and guesthouses' while recent visitor figures show a boost to visitor numbers to the country, particularly from the UK. Between March and May this year, the number of people visiting from the UK rose six per cent to 726,000.
Graham Wason, Chairman of the Cut Tourism VAT campaign, which last week called for regional communities to back a campaign to reduce VAT in the UK to 5 per cent to bring tourism and hospitality rates in line with those in other countries in Europe, said the figures strengthened the campaign's case.
He said: “These latest figures clearly show the positive impact that a reduced rate of tourism VAT can have on the economy.
"Whilst the UK tourism sector struggles under a 20 per cent rate, the Republic of Ireland has taken advantage of a lower rate to increase its visitor numbers and new jobs. Hard-working British families have to look to get the most value from every holiday pound they spend, and the UK’s high tourism VAT encourages them to take a break abroad in Ireland, France or elsewhere in Europe.”
Ireland's good fortune has affected hotels across the border in Northern Ireland.
Janice Gault, chief executive of the Northern Ireland Hotels Federation, said the lower VAT rate in the Republic of Ireland was proving 'a particular challenge for hotels in Northern Ireland'.
"Our hotels offer excellent quality and value for money, but we struggle to compete against hotels on the other side of the border which charge less than half the UK rate of VAT for visitor accommodation," she said. "The UK Government needs to recognise the value of our industry and help us compete on a level-playing field within Europe.”
Last October South Antrim MP Dr William McCrea wrote to the Treasury to argue for a lower rate of VAT for Northern Ireland's restaurants and hotels, saying such a move could help stimulate growth and provide more jobs.
"A vibrant and healthy hospitality sector is essential to the economy given our land border with the Irish Republic," he wrote. "The Republic of Ireland ‘s recent reduction in VAT for the tourism industry to 9 per cent puts us a distinct disadvantage when it comes to the VAT that our hospitality sector across Northern Ireland has to pay. Research has shown that if Northern Ireland was to achieve a VAT reduction similar to that in the Republic, there could be approximately 3,300 jobs created in addition to the 35,000 individuals employed by the industry.”
However, a response from the Treasury said there were no plans to reduce the rate as under EU VAT law regional reductions could not be granted. It also said VAT formed only 'part' of the cost of a holiday and that Northern Ireland had benefited from the weakening of sterling over the last few years.