One in every five restaurants in Ireland will be at risk of closure if the Government increases the reduced VAT rate back to 13.5% again as planned, the Restaurants Association of Ireland has warned.
The warning came as the organisation published a report it commissioned examining the economic basis for continuing with the current 9% rate.
The report, written by Associate Professor Emeritus of Economics, Dublin City University Business School, Tony Foley, concludes there is a strong economic case for arguing that now is not the time to increase the VAT rate from 9% to 13.5%.
The analysis finds Ireland would be left at a competitive disadvantage internationally versus other countries with low VAT charges if the rate here were to rise again.
The report also says increasing the VAT rate would add further to the rising cost of living at a time when inflation is already much higher than normal.
It also finds that the energy crisis and other rising costs have squeezed margins in restaurants, putting the business model under much higher pressure.
The research also points to the wider macroeconomic and tourism market, which it claims will perform weakly this year.
"The government needs to re-evaluate their plan to raise the VAT Rate for the hospitality sector by 50% as this hike comes in conjunction with various constraints such as the end of the Temporary Business Energy Support Scheme (TBESS)," said Adrian Cummins, CEO of the Restaurants Association of Ireland.
"Thus, leaving restaurant owners, many of whom identify as SME's, to battle pressures on margin and by our estimate putting one in five restaurants at risk of closure due to a VAT increase."
The report also finds that the restaurant sector has a wide regional spread which requires a supportive environment.
It also provides jobs for both skilled and low skilled staff and those who require atypical hours.
The research argues that the exchequer can afford the cost of continuing with the lower rate of VAT.
Senior members of the Government are expected to begin considering the future of the various cost of living supports, including the reduced VAT rate, this week.