Why Ireland's 9% Vat rate is crucial for the survival of restaurants and cafés

Irish Examiner

a day ago

At first glance, Vat (Value Added Tax) may seem like just another line on a receipt. But for thousands of small and medium food businesses across Ireland — from bustling cafés in Galway to family-run restaurants in rural Kerry — that single percentage figure represents the difference between survival and closure.
The debate around Ireland's hospitality Vat ate is more than a fiscal exercise; it's a matter of economic sustainability, cultural preservation, and community resilience.
The 9% Vat rate for the hospitality sector, first introduced as a temporary measure in 2011 during the post-recession recovery period, has become a lifeline for food service businesses. It was re-introduced during the covid-19 pandemic to support a battered industry.
Yet, despite the continuing challenges — inflation, staff shortages, rising energy costs, and shifting consumer behaviour — the Government increased the Vat back to 13.5% in September 2023. This decision, though possibly justifiable on paper, is proving catastrophic in practice.
Adrian Cummins, CEO of The Restaurants Association of Ireland: 'The cost of maintaining the lower rate is far less than the long-term cost of losing these vital businesses.' File photo: Gareth Chaney/Collins
Restaurants, cafés, and food businesses operate on notoriously tight margins. Unlike tech or finance, where scalability can rapidly offset costs, food businesses often juggle high fixed costs, fluctuating ingredient prices, and intensive labour requirements.
The average profit margin for a restaurant hovers between 3% and 5% in good times — far less in rural areas or off-season. In this context, a 4.5% hike in Vat is not a minor adjustment; it is a significant blow.
For every €100 spent by a customer, food businesses now hand over €13.50 instead of €9. That €4.50 doesn't just disappear from the books — it gets absorbed into decisions about whether to reduce staff hours, shorten opening times, cut menu items, or even shut down altogether.
The importance of the 9% Vat rate is most visible in rural Ireland, where hospitality is often the heart of local economies. In smaller towns and villages, the local café or bistro isn't just a place to grab a coffee — it's a community hub, a tourist touchpoint, and an employer of local youth.
These businesses don't have the footfall of urban centres and often rely on seasonal tourism to survive. A Vat hike impacts them more severely and more quickly.
We're already seeing the results: dozens of closures have been reported in 2024 alone, with more expected. These aren't businesses that failed due to poor management or lack of demand — they are victims of compounding pressures, and Vat policy is one of the few levers government can adjust quickly to provide relief.
Restaurants, cafés, and food businesses operate on notoriously tight margins, says Adrian Cummins, CEO of The Restaurants Association of Ireland.
One might argue that businesses could simply pass the cost onto the consumer. But in a cost-of-living crisis, where inflation has touched every aspect of daily life, that is neither realistic nor fair. Irish consumers are already paying more for groceries, rent, fuel, and utilities.
Restaurant prices have steadily climbed to keep pace with inflation, and pushing them higher risks deterring diners altogether. This creates a vicious cycle: higher prices reduce customer numbers, lower turnover squeezes margins further, and more businesses are forced to cut back or close.
A stable 9% Vat rate acts as a buffer, giving operators breathing space to manage pricing without alienating customers.
Job losses
The hospitality sector is one of Ireland's largest employers, supporting over 170,000 jobs, many of them part-time, entry-level, or in areas with few alternative employment options.
Students, single parents, migrants, and career hospitality workers all rely on the continued health of cafés, restaurants, and bars.
When a restaurant closes, it doesn't just lose its owners money — it pulls pay cheques, tips, and livelihoods out of a local economy.
By reverting to the 13.5% Vat rate, the government has inadvertently increased the risk of job losses across a sector already struggling to recruit and retain staff.
A lower Vat rate supports job security, keeps wage bills manageable, and allows businesses to invest in training and growth.
Tourism
Ireland prides itself on offering a warm, welcoming experience to tourists, with food and drink playing a central role. Yet the higher Vat rate makes Ireland one of the most expensive countries in Europe for dining out.
Our tourism competitors — Portugal (6%), France (10%), Italy (10%), Germany (7%) — all offer reduced Vat rates for hospitality.
In many cases, they've retained these rates long-term, recognising their impact on competitiveness.
If tourists view Ireland as prohibitively expensive, they may shorten their stays, spend less while here, or opt to travel elsewhere.
Local businesses lose out, and the Exchequer misses out on the long-term revenue generated by healthy, sustainable tourism.
A 9% Vat rate isn't a gift to the hospitality sector — it's an investment in Ireland's attractiveness as a destination.
Targeted tax policy
Fiscal discipline is essential, and of course, government needs tax revenue to fund healthcare, education, and public services. But not all tax increases are equal in their impact.
The hospitality Vat rate is one of the few tools the State can use with near-immediate economic consequences. Lowering it supports hundreds of thousands of jobs, keeps local economies alive, and actually encourages compliance by keeping prices at levels where businesses can still compete.
Moreover, many food businesses re-invest profits locally — paying local suppliers, sponsoring community events, supporting GAA clubs. Every euro kept in a restaurant's till multiplies through the local economy.
It is a smarter, more community-driven approach than allowing closures to pile up and relying on emergency grants or welfare payments after the fact.
Ireland's restaurants, cafés, and food producers have weathered a tough decade — Brexit, the pandemic, the energy crisis, staffing shortages, and inflation.
To now burden them with a Vat increase during what should be a recovery period is to risk undoing years of resilience and investment.
A permanent return to the 9% Vat rate is not about giving the industry a 'handout'. It's about recognising the unique pressures food businesses face and acknowledging their value — economically, culturally, and socially.
The cost of maintaining the lower rate is far less than the long-term cost of losing these vital businesses.
Policymakers must engage directly with industry voices and hear the stories behind the statistics. They must look not just at balance sheets but at boarded-up shopfronts, declining town centres, and struggling workers.
They must remember that hospitality isn't just an industry — it's part of the Irish identity.
Ireland has a chance to lead with foresight, fairness, and pragmatism. Reinstate the 9% Vat rate for hospitality — before it's too late.
Adrian Cummins is CEO of the Restaurants Association of Ireland