The lower VAT rate of 9% for the tourism industry will continue into 2013.
Minister for Tourism Leo Varadkar confirmed the move in the Dáil after discussions with Minister for Finance Michael Noonan.
Mr Varadkar said that the reduction has been successful in increasing employment and it has, by and large, passed on to consumers.
He said he is happy that he can give those in the tourism industry the certainty that they were looking for.
Fine Gael TD for Donegal North East Joe McHugh welcomed the decision and said it was "positive news for the tourism industry".
He added: "This extension of the lower rate will enable the industry to plan and to market for next year in the knowledge that Ireland will be able to offer lower-cost tourism options to tourists."
Retail Ireland has welcomed the retention of the 9% VAT rate, but called for similar relief to be shown to the retail sector.
Speaking on RTÉ's Drivetime, its director Stephen Lynam said Ireland had the joint fifth highest VAT rate in Europe.
He said the increase to 23% in the last budget has had a negative impact on retail sales.
"Retail sales have fallen in the first quarter of this year. The fall in February was the sharpest since 2009 at the pit of the recession.
''So we would like to see the Minister reverse his decision - decrease the VAT rate and hopefully see an increase in the VAT take,'' said Mr Lynam.
Irish Hotels Federation President Michael Vaughan welcomed the retention rate for the tourism industry.
"We're seeing real jobs created. I think 11,000 jobs have been created since the VAT was reduced. So it is giving great certainty for 2013, and The Gathering is underpinned by this as well,'' he said.
