Enjoy Malahide

Peter Mark's hair salon on Grafton Street advertises its reduced prices resulting from the reduction in VAT. Photograph: David Meehan

GOVERNMENT MINISTERS have warned restaurants and hotels to pass on the reduction in VAT that took effect yesterday to consumers or risk having the concession abolished after next year.

Taoiseach Enda Kenny said businesses in sectors where the new lower VAT rates apply will be “failing Ireland” if they did not pass the reductions on to consumers.

Sales tax on restaurants, hotels, cinemas, newspapers and tourism-related activities fell from 13.5 per cent to 9 per cent yesterday in a move Minister for Tourism Leo Varadkar described as one of the “most important” initiatives in the Government’s jobs strategy.

The measure is set to last only until December 2012, when it will be reviewed for the 2013 budget. There is no obligation on the industries to pass on the savings.

Speaking in Co Limerick yesterday, Mr Kenny said the Government would have “very, very strident discussions” with businesses which fail to cut prices.

“This is an opportunity to really save many industries but also to build an indigenous economy that will create jobs and provide growth and opportunities for people.”

Minister for Finance Michael Noonan said that in order for the cut in VAT to be successful in boosting tourism and creating jobs, the benefits had to be passed on to consumers.

“If it is shown that the VAT reduction has little or no effect in aiding the industry, then the measure is open to being reformed or abolished,” he told Labour TD Eric Byrne.

Mr Varadkar also warned tourism businesses that the VAT reduction may not be extended beyond next year unless they pass on the benefits to consumers.

He said it would be impossible for him to argue for an extension of the VAT cut or for other concessions for the tourism industry if it failed to pass on the savings in the form of lower prices.

The measure, which was announced earlier this year as part of the Government’s job initiative, will cost the exchequer €120 million this year and €350 million in a full year.

Mr Varadkar admitted businesses could not be forced to reduce their overall prices on foot of the VAT reduction, though they were obliged to reduce the rate of tax they charged.

However, he said he expected the vast majority of tourism operators to deliver lower prices for their customers.

The Restaurants Association of Ireland said it had instructed its members to pass on the benefits of the change to customers.

It described the new rate as “one step” in building a more competitive market, and said it would continue to advocate the abolition of joint labour committees and Sunday premium payments.

According to the association, the savings would equate to a €1 reduction on a €25 meal in a restaurant.

Fast food chain McDonald’s, which has 78 outlets in Ireland, said the price of products such as a Big Mac meal would fall by 25 cent.

The reduction will also take about 50 cent off a €9.50 cinema ticket and €2 off ladies’ haircuts costing €45.

Tim Fenn, chief executive of the Irish Hotels Federation, said its members had also been asked to pass on the savings. He said the organisation was pleased tourism was at the centre of Government plans for growth and recovery.

Frank Cullen, of the National Newspapers of Ireland, said the organisation had campaigned to have the rate reduced, as the tax on newspapers was among the highest in the European Union.

The recommended retail price of The Irish Times has fallen to €1.85 on weekdays and to €2.15 at weekends.

Tax cut: what’s affected

The cut in VAT applies to restaurant and catering services; hotel and holiday accommodation; various entertainment services such as admissions to cinemas, theatres, certain musical performances, museums, art gallery exhibitions and fairgrounds and amusement parks; use of sporting facilities; hairdressing services; and printed matter such as brochures, maps, programmes, leaflets, catalogues, newspapers and magazines.

Source: The Irish Times - Saturday, July 2, 2011 - http://www.irishtimes.com/newspaper/ireland/2011/0702/1224299941216.html