Ireland's hospitality VAT cut aims to help small restaurants – but chains like McDonald's gain the most

The Journal

3 days ago

LET'S GET RIGHT into it – the government's move to cut the VAT rate for food businesses will disproportionately benefit large companies. Many of these are already making massive profits.
A quick rundown of some of the big winners:
McDonald's – making €42 million a year in profits
Supermac's – €46 million
The business behind behind many Pizza Hut / KFC / Costa Coffee outlets – €12 million
Domino's Pizza – €5.6 million
Nando's – €5 million
The Irish government is set to hand out a tax reduction worth over €500 million a year.
And these extremely profitable companies will be the ones which gain the most.
Now, that was a bit of an info dump. So let's back it up a bit.
VAT reduction
The government has made a '
solemn promise
' to cut the VAT rate for the hospitality sector.
Currently set at 13.5%, the plan is to reduce it to 9%.
The main argument for this is as a kind of state support to struggling small restaurants. Ensuring they don't close and people don't lose their jobs.
It's a noble goal. But multiple economists have said cutting the VAT rate is a bad way to achieve this.
To understand why, let's take a look at some of the biggest winners if the VAT rate does get cut.
First, a quick reminder on what the hospitality VAT rate is.
VAT (value added tax) is a charge levied on essentially all goods sold in the country. The normal rate is 23%.
So when you buy something in a shop which costs €1, 23 cents of that sale goes to the state in the form of VAT.
There's a reduced rate of 13.5%, and then an even lower rate of 9%. A few products are eligible for zero VAT, but those are the three main bands most businesses fall into.
Restaurants (and other food businesses, like catering firms) currently fall into the 13.5% category. They want to go into the 9% category.
So, what's the downside?
First of all, cost.
The measure would mean the state collects
about €545 million less per year in VAT
. That's if the measure is just applied to food and catering businesses.
If it also applies to cafes, as has been suggested in some quarters, the annual cost is expected
to be about €675 million
.
Where will all this money go?
There have been some suggestions that the extra money restaurants get from paying 4.5% less VAT would go towards reducing prices for customers.
But restaurants themselves have said
that won't be the case
. They instead argue that paying 4.5% less in tax would act as a support to businesses.
Groups such as the Restaurants Association of Ireland say that this is desperately needed at a time when their costs are rising significantly.
'The decision to increase the hospitality sector's VAT rate from 9 to 13.5% is the primary cause of the hundreds of restaurants, cafés and other food-led businesses that have closed their doors since then,'
it says
.
But if it's true that food-led businesses are struggling so badly, why have so many of them posted strong financial results?
Let's go back to the examples we mentioned earlier in a bit more detail:
McDonald's Ireland -
The main corporate entity for the multinational doesn't actually operate outlets itself. It generates money from charging its franchisees. 2024 profits =
€42 million, up 17% vs 2023
. 2024 revenues = €87 million. It also paid out a dividend of €51 million in 2023 and €25 million in 2022.
Supermac's
– The firm behind the fast food chain (which also has a hotels component) recorded pre-tax profits
of €43.6 million
in 2024. Revenues rose by 7% to €294 million. The group's cash pile increased from €86 million to €112 million.
MBCC Foods (Ireland) Ltd -
This is a holding company behind many Pizza Hut, KFC and Costa Coffee outlets. Newly-filed accounts show pre-profits doubled from €6 million in 2023 to €12 million in 2024. 2024 revenues = €114 million (vs €99 million in 2023). The firm paid out a €7.5 million dividend to its owners, after a €1.8 million dividend in 2023.
Shorecal -
The largest Domino's Pizza franchise business,
recorded pre-tax profits of €5.6 million in 2023
(most recent accounts available). Down from €8.6 million in 2022. It paid out a €3.8 million dividend, after a €20 million payout the year before.
Nando's Chickenland Ireland -
Pre-tax profits of €4.7 million. Down from €5.6 million. 2024 revenues = €34 million (vs €31 million in 2023).
Okay, so there's a lot of numbers there showing these fast food businesses are profitable. So what?
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The point is the VAT reduction will go directly to the bottom line for these businesses.
Government ministers have said the VAT reduction is
a 'jobs measure' that will sustain employment in that sector
.
But these businesses are already in a good financial situation. They're doing just fine with the current VAT rate. And this is by no means an exhaustive list of profitable Irish food businesses.
Let's take a made-up example to show the point.
A small Irish restaurant sells €500,000 worth of food in a year.
A large fast-food chain sells €50 million – 100 times more.
If VAT is cut by 4.5%, the small restaurant saves €22,500 in tax for the year. The large chain saves €2.25 million – 100 times more.
That's why lots of money from the 4.5% VAT cut will end up with the largest companies. And that's why many analysts say it's a poor way to target support.
Some may say that the businesses listed above are all fast food firms. Not small, sit down restaurants which the government has talked of supporting.
But that feeds into the argument many economists have made – if we want to support small restaurants, why not bring in a support which is better targeted at these businesses?
I put this question to Adrian Cummins, head of the RAI and one of the leading voices for the VAT reduction.
He said: 'We're very clear that VAT is our ask because everyone benefits from it.'
'Maybe there is an argument that larger organisations will benefit more than smaller ones. That's a fact, but that's the way it is.'
However, Cummins said the measure is still justified as it will help smaller restaurants and give long-term certainty.
'One possibility which we're absolutely opposed to is grant aid in lieu of a VAT reduction. There's no way we would entertain that. A grant is a once off,' he said.
'The government has promised us that when the VAT rate is reduced, that's it. It'll be done and dusted. We want certainty so we can plan for the future.'
The viewpoint is understandable for small restaurants under financial stress.
However, the big problem with the VAT reduction is – we don't really know how many of them are.
Where's the evidence?
This has always been the main problem with the entire debate around the hospitality VAT rate.
There is a lack of evidence. We don't really know how many food businesses fall into the 'mom and pop' outlets barely keeping the lights on.
And how many are chugging along making healthy profits.
Basically – we would be foregoing a lot of tax revenue for a move when we don't even know how many businesses it will help.
Or how many actually need help in the first place.
This is why researchers are against cutting the VAT rate.
Why the Department of Finance is against it
. Why unions are against it (as it reduces the scope for income tax cuts for workers). Why one economist has memorably described the proposal as
'expensive and economically illiterate'
.
If all these groups are against the move. And the strongest voice in favour is the industry itself – what does that indicate?
So far, the government seems to be completely basing its decision to reduce the VAT rate on the sector itself saying it is struggling.
But there isn't independent evidence to back up how widespread the problem is.
And if the government pushes ahead with the VAT cut anyway, big businesses already making millions will be happiest.
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