Finance Minister Michael Noonan is under pressure from Fine Gael colleague and Tourism Minister Michael Ring to retain the nine per cent lower VAT rate in the Budget.
Mr Ring told the Sunday Independent yesterday that thousands of jobs could be lost in the tourism sector if VAT was returned to its 2011 rate of 13.5 per cent.
Last week, Labour TDs Derek Nolan and Ann Phelan and Fine Gael TD Brendan Griffin also raised concerns in the Dail that a VAT hike could be detrimental to the economy.
Meanwhile, a recent European Commission study has found that an estimated €1.1bn, or 0.7 per cent of GDP, was lost in Ireland in 2011 due to either non-compliance or non-collection of VAT.
The study was part of its work to reform the VAT system in Europe, as well as its wider campaign to clamp down on tax evasion.
The VAT Gap is the difference between the expected VAT revenue and VAT actually collected.
While non-compliance is regarded an important contributor, the VAT Gap is not only due to fraud.
Unpaid VAT can also result from bankruptcies, insolvencies, statistical errors, delayed payments and legal avoidance, amongst other things.
Mr Ring yesterday said that the VAT reduction had helped the tourism sector: "It has worked and I want it to continue. Now is not the time to end this, particularly after the success of The Gathering."
Mr Ring also complimented Mr Noonan on "having the guts in difficult times to take this initiative".
However, he warned that when it comes to the domestic economy "consumer confidence, though rising, is still very fragile, people are only starting to come out again".
Mr Ring also said it was important to note the initiative had created "real jobs for working people, not everyone can be employed in the smart economy, and the great thing is they are spread across the country".
Mr Ring added: "TDs have been inundated by representations from hoteliers and I have been inundated with representations from TDs."
Throughout Europe, an estimated €193bn in VAT revenues (1.5 per cent of GDP) was lost due to non-compliance or non-collection in 2011, according to the EC study. The study recommends a tougher stance against evasion and stronger enforcement at national level as essential.
It also states that the simpler the system, the easier it is for taxpayers to comply with the rules.
The commission says member states need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection.