The hotel sector has been criticised for "price gouging" and not passing on the VAT reduction to 9% to the consumer by Minister of State Niall Collins.
VAT was cut from 13.5% to 9% in Budget 2021 to aid businesses in response to the Covid-19 lockdown and its impact on the sector.
The rate for the hospitality sector is due to return to 13.5% in February of 2023, although the hospitality sector has been calling for the figure to remain at its current rate.
Speaking on RTE's Today with Claire Byrne, Mr Collins said: "We have seen, particularly in the hotel sector, severe price gouging.
"The VAT reduction in the hospitality sector was to be passed on to the customer. It clearly wasn’t over the last number of months.
"VAT is a consumer tax and a cut in the rate of VAT is supposed to be a price reduction to be passed on to the consumer, not a mechanism for assisting the business.
"It’s to act as a stimulant for business by virtue of a price reduction to the consumer and that price reduction was not passed on."
Minister for Finance Paschal Donohue is expected to address the issue in the Budget on 27 September.
According to an analysis carried out by the Irish Hotels Federation, a combination of reduced supply and strong demand has meant the bulk of average priced hotel rooms are selling out months in advance.
This is leaving only the higher priced rooms in hotels for consumers to choose from nearer the time, giving a false impression that all prices are being inflated to take advantage of the strong demand particularly around events, it claims.
Read more: Hotel and tourism sector on sticky wicket on issue of high prices
Tánaiste Leo Varadkar has said that the Government has yet to decide if the current 9% VAT rate will increase to 13.5% for the hospitality sector.
"The 9% VAT rate will remain in place at least until the end of February," Mr Varadkar said during a visit to Kerry.
He also said that he does not believe that the sector increased prices significantly during the summer months.
"I don’t think price gouging has been the norm. If you look at the numbers when it comes to hotel rooms, restaurants and pubs and so on, they haven’t soared.
"There are some examples of individual hotels that overcharged for the last room but I don’t think that has been typical across the country," he said.
Govt to help business sector over energy crisis
However, on a broader note, Mr Collins said that the Government will help the business sector to come through the current energy crisis.
"I'm concerned that business is concerned and I’ve echoed those concerns to my Government colleagues," he said.
"Micheál Martin is firmly on the record that we have to have a very significant response to help business get through the energy crisis.
"We’re speaking about protecting the jobs of people who collect their pay packets every week, every fortnight, every month, who are living in every community right across Ireland.
"We will be helping business significantly throughout this crisis."
