Drinks industry calls for reduction in alcohol VAT rate

The VFI, along with LVA and the Ibec representative group Drinks Ireland, is calling for a temporary reduction in the hospitality VAT rate; and extending it to apply to alcohol sales in the on-trade (pubs and bars), until 31 December 2020.

The three representative organisations urgently convened as a group last week to consider the magnitude of the impact that the current pandemic is having on Ireland’s drinks and hospitality industry, and to look at the measures required to support these businesses – who will struggle in the short term until they can resume operating at full capacity in 2021 – including VAT on on-trade alcohol.

An amended European Commission directive (Directive 2009/47/EC) makes it possible to extend and apply a lower VAT rate on on-trade alcohol in Ireland, ‘a fact unknown to many who believe it may be disallowed under EU VAT Directives’, according to VFI Chief Executive, Padraig Cribben.

‘VAT relief on alcohol sold for on-trade consumption is an incentive for pubs, as businesses, to reopen. VAT matters to businesses and this is about giving them a cash injection. Such a measure would generate immediate support, allowing businesses to trade through the reopening period and maintain jobs until trade picks up,’ he said.

EU and UK

Such a measure would be in line with other EU countries, which are using temporary reductions in VAT to provide immediate support to their drinks, hospitality, and tourism sectors in the midst of the Covid-19 crisis.

In Spain and Italy, VAT on on-trade alcohol has long been set at the hospitality rate. In Cyprus, the VAT rate on services has been reduced from 9% to 5% from June to January 2021 and this applies to alcohol sold in the on-trade.  In the UK, a lower VAT rate for the tourism sector – including pubs, restaurants and hotels – is an option currently being considered. Measures are due to be announced later this week as part of their economic statement and fiscal stimulus.

Commenting, Donall O’Keeffe, CEO, LVA said:

This unprecedented crisis has, and will continue to have, a devastating impact on Ireland’s drinks and hospitality industry. Pubs in particular have been severely impacted and will continue to be challenged given the restrictions required, including social distancing and time-limits on customer visits. Most will reopen over the course of the next number of weeks, but others will remain permanently closed.

‘We were among the first sectors to close on 15 March. We are among the last to reopen with many pubs still not permitted to reopen until 20 July. We will do so under very unique circumstances, completely at odds with what it means to enjoy our culture and heritage in the pub. We have had to completely change our business model and the VAT model should change to reflect our new reality. Government guidelines mean we will operate at 50% capacity or less, yet our VAT burden currently remains the same – this is inequitable and should change, similar to measures taken on VAT in other EU countries.

‘Our VAT rate on alcohol is significantly higher than EU averages. It is our strong view that a temporary reduction and extension of the hospitality VAT rate to alcohol sales in the on-trade, until 31 December 2020 should be implemented. This will provide tangible support and show solidarity with this industry. This is about businesses surviving.’

Together, the group represent over 5,000 pubs – businesses that employ over 50,000 people, right across the country – as well as drinks manufacturers and suppliers in Ireland. The group wrote to all TDs outlining the need for support with regard VAT last week.

Director of Drinks Ireland Patricia Callan said that the drinks and hospitality industry represent a significant network of businesses throughout the country who require support, given the exceptional circumstances of Covid-19 which requires ‘action and bold decision making to drive economic growth.’

‘It is critical that the Government provides targeted financial supports for hospitality businesses to assist them in reopening. Our new Taoiseach has vowed to reboot the economy with ‘urgency and ambition’ – the drinks and hospitality industry is one which requires urgent support and ambitious policy. A reduction and extension of the hospitality VAT rate to on-trade alcohol sales would tangibly deliver for the industry.’

The group is due to launch a campaign – ‘Protect our Pubs’ – next week to engage public support in seeking the new government to temporarily reduce the hospitality VAT rate; and extend it to apply to alcohol.