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Hotels charging more than €150 a night may get hit with a penalty

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Minister for Transport, Tourism and Sport, Shane Ross

Minister for Transport, Tourism and Sport, Shane Ross

Minister for Transport, Tourism and Sport, Shane Ross

A levy on "price-gouging" hotels is being considered as Tourism Minister Shane Ross resists a rise in the VAT rate across the hospitality industry.

The Herald understands the proposal for a tax on hotels charging more than €150 a night for a room is being discussed in Budget talks.

Mr Ross is believed to be concerned that overpriced hotels are damaging the good reputation of Ireland's hospitality industry.

However, he is resistant to suggestions that it comes amid warning signs that the special low VAT rate for the hospitality industry should be phased out.

Crash

The rate was reduced from 13pc to 9pc in 2011 to help the hospitality sector, which had been badly hit in the wake of the economic crash.

However, its continuation has been called into question due to the loss of significant funds to the Exchequer at a time when the price of hotel rooms is spiralling.

It is estimated that a 2pc VAT increase would yield €234m, making it an attractive revenue-raising option for Finance Minister Paschal Donohoe.

However, sources said Mr Ross is concerned a VAT increase across the sector would hit restaurants, as well as B&Bs and hotels which are not charging high prices.

There have also been serious concerns raised about the impact on hotels in rural areas that do not command high room prices.

Government sources said yesterday that no decisions have yet been made on changes to the VAT rate or on other measures relating to the hospitality sector.

Among the options are increasing the VAT, leaving it at the 9pc rate, or introducing a form of city tax as seen in other countries.

The programme for government gives a commitment to retain the 9pc VAT rate on the condition that prices remain competitive.

In a report published in the summer, Department of Finance officials put the cost of the reduced VAT rate at €2.6bn since its introduction in 2011.

The report said "the scale of these costs against the limited benefits point to significant dead weight".

Mr Donohoe declined to reveal anything about his plans for the 9pc VAT rate during an appearance at the Oireachtas Budgetary Oversight Committee this week.

At the meeting, Fianna Fail's Lisa Chambers, a TD for Mayo, said businesses were doing very well in Dublin, but pointed out that on the western seaboard "it's a different story".

She asked that any change to the VAT rate in the Budget would include mechanisms to "rebalance" the situation.

Revenue

Mr Donohoe said the need to support rural businesses in the hospitality sector had been highlighted to him by Rural Affairs Minister Michael Ring and Mr Ross, as well as Junior Tourism Minister Brendan Griffin.

However, he also pointed to the need to raise revenue to pay for spending measures such as housing and new drugs for the health service.

He said choices would have to be made about how to make resources available beyond the €800m in Budget funds signalled in the Summer Economic Statement.

"There are no easy choices how we do it. That's what I'm reflecting on at the moment," said Mr Donohoe.


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