EU Directive gives power to cut VAT on on-trade alcohol
The huge tax burden on on-trade alcohol is now ‘unsustainable’ and ‘unjustifiable’ and must be reviewed to reflect the current Covid trading conditions, says Padraig Cribben.
The three drinks organisations have called on the Minister for Finance to deliver a reduction in VAT on on-trade alcohol in its July Stimulus Package, currently being negotiated by Government, just as the UK Chancellor did yesterday in a huge stimulus and support package for the UK’s drinks and hospitality sector there, 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,” said VFI Chief Executive Padraig Cribben, “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.”
The group has called for a temporary reduction in the hospitality VAT rate and its extension to alcohol sales in the on-trade until the 31st of December. 2020 to be part of the July Stimulus Package.
The measure is being sought to support pubs – 7,000 businesses employing 50,000 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.
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, Cyprus – and now the UK – have implemented reduced VAT rates for on-licence consumption to support businesses as a Covid measure.
The sector could, with the right support, help drive Ireland’s economic recovery after the Covid lockdown, said the group. Despite pubs being one of the hardest- and longest-hit sectors during the past few months – and one of the highest taxed – they’re working hard to get back up and running as soon as possible.
Unsustainable tax wedge
DCU Economist Anthony Foley’s recent report states that over one quarter of alcohol revenues generated by the on-licence sector are now taken by the Government in the form of expenditure tax each year.
Personal expenditure on on-trade alcohol totalled €5.677 billion last year. Of this, over €1.6 billion, or 28%, was taken by the Government in expenditure tax (of which €1.04 billion was VAT). This tax is in addition to other businesses taxes such as income tax, Universal Social Charge, 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.
“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,” he continued, “These are businesses which employ significant numbers and add to the vibrancy and life of 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.”
Tony Foley’s report, Reduce VAT on on-trade alcohol, also found that pub alcohol sales will decline by 50% or more for the second half of 2020 – and this was the most optimistic market expectation.
“This is for businesses and is not intended as a demand stimulus which VAT rate changes tend to be,” said LVA Chief Executive Donall O’Keeffe, “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.”
Drinks Ireland Director Patricia Callan pointed out, “The Government should grasp the opportunity to support the on-licensed sector efficiently and effectively by lowering the VAT rate on on-licensed alcohol sales, one made possible by an amended European Commission Directive”.
She concluded, “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 temporary VAT reduction ask is part of the ‘Protect our Pubs’ campaign recently launched by the three groups which seeks to highlight the important social and cultural role that the drinks and hospitality industry play in communities around Ireland. The campaign also aims to demonstrate the loss that would be felt should some pubs not re-open due to Covid-19.
Follow the Protect our Pubs campaign at #NewGovProtectourPubs.
