New research has predicted that the deterioration in the food services sector here caused in part by the increase in the VAT rate could lead to drop of over €1bn in tourism and hospitality revenue and 21,000 job losses.
The report also claims that the average margin for hospitality food services here has fallen to 1.9% from 7.2% in 2019.
The study was commissioned by the Irish Tourism Industry Confederation, Restaurants Association of Ireland, Vintners Federation of Ireland, Irish Hotels Federation and Licensed Vintners Association.
It lays out a series of arguments it claims support the case for the 9% VAT rate on food services to be re-introduced.
The report by economist Anthony Foley claims the food services sector is in a commercial crisis and is undergoing substantial shrinkage caused by a large deterioration in its commercial model.
It says this has been generated by high general inflation, the increase in the VAT rate from 9% to 13.5% and large increases in employment-related costs which are driven by Government policy changes.
It claims closures, reductions in opening hours and days and a limitation on menus are all part of a significant downsizing underway in the sector.
The analysis says this will be bad for tourism as a product in this country, as well as the sector itself because the provision of a sufficient range, quality and availability of the food experiences for visitors is a key element of Ireland's tourism and hospitality offering.
It predicts that international tourism spending could fall by €733m as a result of the deterioration in the food services sector, while domestic tourism spending could drop by as much as €312m.
International visitors would decline by 625,000 and domestic trips would decline by 1.43 million, while employment would decrease by over 21,000 and tax revenue by €174m it claims.
"Today’s report reveals a stark reality for hospitality businesses the length and breadth of the country in that current Government policies are fundamentally at odds with the long-term interests of our sector and wider tourism industry," the organisations said in a joint statement.
"We are facing a perfect storm, largely as a result of short-sighted decisions by Government."
"It is imperative that the 9% rate of VAT is re-introduced for hospitality food service businesses, which are struggling to deal with exceptionally tight margins, falling food sales and significant increases in operating costs due to Government imposed measures."
The report concludes that the introduction of the 9% VAT rate in 2011 made a substantial contribution to the expansion of the food services sector, tourism and revenue from tax, with international visitors rising 55%, domestic trips by 62% and hospitality employment by 57% between 2011 and 2019.
But it says even though the VAT rate has been lower for periods, the contribution to tax from the hospitality sector has risen substantially over the last 13 years.
Last year, net tax receipts from the hospitality sector alone reached an all-time high of €1.86 billion, an analysis of data from the Revenue Commissioners shows, the report claims.
The figures also show that, before increasing the VAT rate last September, the hospitality sector was already generating at least €585 million in additional taxes for the State on an annualised basis compared with 2018, when the rate of VAT was also at 9%.
Mr Foley estimates that the higher 13.5% VAT rate will lead to the annual tax take from the sector rising to €2.33 billion this year, some €1.17 billion higher than in 2018.
This equates to a 100% increase in annual taxes, resulting in an unsustainable burden for the sector at a time when hospitality businesses are struggling to survive, those behind the report claim.
The report claims a low food services VAT rate is widespread internationally and reducing it to 9% on hospitality food services would make Irish tourism more competitive.
