The Government has decided to amend the Brexit Bill to lower the threshold for qualification for a VAT refund scheme availed of by residents of non-EU countries.
With the UK becoming a third country from January 1, visitors from there will be able to avail of the Retail Export Scheme.
The scheme allows travellers from non-EU countries, who purchase craft and gift items here, to claim tax relief on the goods when they return to their home countries with the goods.
There were concerns about the potential for abuse of the scheme given the proximity of Ireland to the UK and the volume of traffic from there.
In an effort to address this concern, a measure in the Brexit Omnibus Bill 2020, which is being brought through the Oireachtas, sought to exclude all purchases under €175 from the scheme.
That meant, in effect, that a tourist in Ireland would have to spend at least €175 on a single purchase to avail of a VAT refund.
A report by economist Jim Power, on behalf of the "Stop Another Tourism Tax Campaign" - an alliance of independent Irish retailers and tourism businesses - published earlier this week, said the €175 threshold would impact jobs, tourism and the retail sector.
In his report, Mr Power estimated that almost 85% of refunds under the current scheme are on purchases of less than €175.
The study calculated that, in effect, the real price of tourist purchases would rise by up to 23%.
The report concluded that the change would disproportionately impact businesses along the Wild Atlantic Way on Ireland's west cost.
The Cabinet has now agreed to reduce that threshold to €75.
"This amendment is important for retailers, especially those whose businesses are engaged with the tourism sector," the Minister for Finance Paschal Donohoe said.
"The reduction from €175 to €75 retains protections for the Exchequer while also acknowledging the potential impact that not making this change would have on retailers across the island," he added.
The qualifying threshold will be changed via a committee stage amendment of the legislation.
But the Stop Another Tourism Tax campaign said the changes made by the Minister are wholly inadequate and will continue to be a major blow for Irish tourism and retail at a time of crisis.
Jim Power pointed out the Retail Export Scheme contributes €108.1m to the economy, with a large proportion of this spent outside of Dublin.
Noting that the tourism and non-essential retail sectors have been decimated by Covid, Mr Power said they need as much support as possible over the coming years.
"Increasing the Retail Export Scheme threshold to €75 would not represent support and would in fact damage Ireland's competitiveness and decimate the Irish tourism and retail sectors, particularly along the Wild Atlantic Way," the economist said.
He said that given the level of support given to Irish tourism in Budget 2021, it defies belief as why Government would now turn around and introduce a policy that completely flies in the face of Government policy and which would represent another hammer blow to sectors that are already under serious pressure.
"Sanity needs to prevail. It is important to remember that even at €75, Ireland's threshold would still be very high by international standards," he added.