Irish Hoteliers Call For Urgent Tax Cuts

by Robert Lee, Tax-News.com, London

03 March 2009

At its annual conference in Killarney on March 1, the Irish Hotels Federation (IHF) called for tax cuts to support the hotel and tourism industry in Ireland during the period of recession.

The IHF, which represents 1,000 hotels and guesthouses nationwide, has called for a temporary reduction in the standard rate of VAT by 5% over the next six months, an easing of the regulatory burden on SMEs and a prohibition on all increases in public sector prices and charges, in order to provide support and stimulate the industry.

The IHF urged the government to give consideration to these proposals before the publication of the Commission on Taxation’s report and the public services review.

Matthew Ryan, President, IHF, voiced his opinion to participants at the conference, stating:

“The immediate priority must be to stimulate activity in the wider economy over the short term and ensure measures are in place that prevent greater levels of economic decline. The government must regain control of the public finances through a number of radical actions while seeking to boost economic activity, increase competitiveness and generate consumer confidence. It must establish a robust framework for the correction of the public finances.”

“All these objectives are interrelated in that a sound strategy for public financial stability will improve confidence both nationally and internationally. Measures to sustain existing economic activity such as credit availability and improved competitiveness will also enhance confidence in consumers and the business sector and providing a foundation for the restoration of business confidence and a return to medium term growth and development.”

The IHF claims that a temporary reduction in the standard rate of VAT from 21.5% to 16.5% and a reduction in the reduced rate from 13.5% to 10% would have the combined effect of stimulating the wider economy and addressing the competitive imbalance, which it claims exists between Ireland and the UK.

“Given the weakened value of sterling and the UK government’s decision to reduce its rate of VAT to 15% last December, Ireland must act swiftly to level the playing field with our nearest neighbour. Any further delay could have detrimental consequences for the Irish economy,” stated the IHF release.

“A reduction in VAT will make goods and services cheaper and thus encourage spending which in turn will help stimulate growth. With over 64% of hotel bed nights now coming from the home market and almost 17% coming from the Britain and Northern Ireland, the measure will have considerable additional knock-on effects for the tourism sector,” suggests Ryan.

Also within the IHF proposals SMEs would see reduced regulatory burden to assist improving competitiveness. Ryan suggests that SMEs should be temporarily exempt from regulations introduced in the past few years. IHF has also proposed suspending inspections of regulatory bodies for a period of one year and increasing VAT exemption levels to EUR150,000.

Ryan states: “The tourism and hotel industry is experiencing an unprecedented economic environment with hoteliers facing dramatic reductions in revenue coupled with rising costs. Costs are a major determinant of competitiveness. There are significant costs associated with meeting escalating, multi-layered regulations across every aspect of the hospitality business. Whilst these regulations are important, a balance needs to be struck to ensure that businesses are not lumbered with excessive, bureaucratic and unnecessary regulatory requirements. We need a moratorium on those that can be paused without impacting on the quality of our product and service we provide.”

Other economic measures the IHF proposes include:

• Increased rates of income tax generally and especially at incomes above EUR250,000;
• Additional reductions in the public sector payroll based on average salaries and not on headcount reduction;
• Rationalisation of the national, regional and local government structures;
• Substantial reductions in all other public expenditures; and
• A property tax on domestic dwellings.

Ryan melodramatically concluded his speech to participants stating:

“Tough decisions and unpleasant medicine are required now to reshape our economy to not only retain competitiveness but to secure current employment – we need to take the medicine now, otherwise the situation will spiral and worsen to a self fulfilled prophecy of doom. We are in the midst of a national economic emergency, and solutions must reflect the extreme seriousness and urgency of the situation.”

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