Industry calls for reduced alcohol tax

The Vintners Federation of Ireland, the Licensed Vintners Association and Drinks Ireland, have called for a temporary reduction in the hospitality VAT rate and the extension of it to apply to alcohol sales in the on-trade until the 31st of December 2020.
A new campaign – ‘Protect our Pubs’ – is launching 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.

A new campaign – ‘Protect our Pubs’ – is launching 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.

The Restaurant Association of Ireland, too, has called for “a realignment of Alcohol Tax Policy in Ireland” and it has also called for a new VAT rate for on-trade alcohol “specifically focused at segments in the market that reflect Public Health Policy”.

The LVA, VFI and Drinks Ireland 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 – which will struggle in the short-term until they can resume operating at full capacity in 2021 – including VAT on on-trade alcohol.

The RAI believes that labour-intensive businesses like restaurants & pubs serving food should avail of a “5% composite rate of VAT on alcohol in line with combined tourism industry calls of a 5% VAT rate for Tourism & Hospitality”.

The RAI has calculated that the cost to the exchequer of a 5% VAT rate would be €379 million which would help support jobs in regional and rural Ireland “and also reflect Public Health Policy around Alcohol”. In order to fund the reduction in VAT from 23% to 5% the RAI has called for a 10% Off-Licence Levy which will raise €331 million.


Directive 2009/47/EC

An amended European Commission directive (Directive 2009/47/EC) makes it possible to extend and apply a lower VAT rate to on-trade alcohol in Ireland, “a fact unknown to many who believe it may be disallowed under EU VAT Directives”, stated VFI Chief Executive Padraig Cribben, “VAT relief on alcohol sold for on-trade consumption is an incentive for pubs, as businesses, to re-open. 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 re-opening period and maintain jobs until trade picks up,” he said.

Such a VAT reduction 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, he claims.

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 the UK’s economic statement and fiscal stimulus.


VAT model could change

This unprecedented crisis has – and will continue to have – a devastating impact on Ireland’s drinks and hospitality industry,” explained LVA Chief Executive Donall O’Keeffe, “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 re-open 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 re-open with many pubs still not permitted to re-open 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,” he concluded.

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


Time for “action and bold decision-making”

Drinks Ireland Director Patricia Callan said that the exceptional circumstances of Covid-19 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 re-opening,” she stated, “Our new Taoiseach has vowed to re-boot 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.


VFI presentation to Dáil committee

This afternoon Padraig Cribben asked a Dáil committee to consider cutting VAT and excise on alcohol sales by around 60 Cent from now to the end of the year.

He pointed out that more than three-quarters of pubs have annual turnovers of less than €390,000 “even in good times” and that State relief would strengthen their cashflow.

He appealed for the new Dáil to help slash pub costs until the end of the year by cutting VAT on alcoholic beverages and reducing excise by 15%. He also sought “rates holidays” for vintners and for the State pay subsidy to remain in place until Social Distancing in pubs can be eliminated. This would allow pubs avoid typical payroll costs of some 20% of turnover in ‘wet’ pubs and of more than 30% in pubs with kitchens and restaurants.

Reduced VAT “would generate immediate and tangible support to [pubs], allowing them to re-open viably and maintain jobs,” he stated.

And even a 15% cut in excise would still leave Ireland with the third-highest excise on alcohol rate in Europe, behind only Sweden and Finland.

“Tens of thousands of people lost their jobs in the space of a single day,” he stated, “Livelihoods disappeared in an instant, some of which may never return. Pubs face a very uncertain future.”

He also believes that pubs will not return to normal trading conditions “until such a time as a vaccine or treatment for Covid-19 has been found. Very few sectors of the economy will have been hit as hard. None will have their trade limited for so long.”

The pub also represents a more controlled environment than the home for the consumption of alcohol.

“As we’ve seen over the past 15 weeks, alcohol was certainly freely available,” he stated, “The result was many uncontrolled house parties and a massive surge in domestic violence reported to and by the gardaí.

“Pubs, by contrast, provide an antidote of sorts to that uncontrolled environment.”


Sign Up for Drinks Industry Ireland

Get a free weekly update on Drinks Industry trade news, direct to your inbox. Sign up now, it's free