Hospitality VAT cut likely delayed to 2026
The government is expected to postpone a VAT reduction for the hospitality sector until mid-2026, allowing more room for broader tax cuts in Budget 2026.
The Programme for Government promises to support SMEs, including those in retail and hospitality, through VAT and PRSI measures
Sources indicate the reduced 9% VAT rate may apply only to food and drink in hospitality venues such as pubs, restaurants, and hotels.
The upcoming Tax Strategy Group papers are expected to acknowledge the difficulty of splitting VAT rates within the sector but say it remains possible.
Minister for Finance Paschal Donohoe said this week that a full-year VAT cut would cost nearly €1 billion, taking up two-thirds of the available tax-cutting capacity in the upcoming budget.
Current modelling suggests a full-year cut for hospitality and hairdressers would cost €715 million.
A mid-year start would lower that figure by around half, though seasonal variations could affect the final cost.
The Programme for Government promises to support SMEs, including those in retail and hospitality, through VAT and PRSI measures.
However, the Department of Finance remains cautious about VAT cuts, citing limited evidence that past reductions were passed on to consumers.
Fianna Fáil Minister of State Niall Collins said this week that a universal VAT cut is “not merited”, and unions have criticised the idea, calling it “economic vandalism” given current sector growth.
Tax strategy papers from 2023 raised concerns about VAT complexity for accommodation providers, warning it could lead to underpayment, enforcement challenges, and tax manipulation.
The debate unfolds amid warnings from the Irish Fiscal Advisory Council over overspending.
Government projections now show total 2025 expenditure is expected to hit €108.7 billion, €3.3 billion above original Budget 2025 figures.
