Sunday, 2nd October 2005

IHF CALLS FOR VAT CHANGES IN FORTHCOMING BUDGET

Also calls on Government to change local authority charges and increase tourism marketing budget and methods

The Irish Hotels Federation (IHF) has called on the Government to do its part in improving the competitiveness of Irish tourism by addressing a number of VAT and local authority charge related issues in the forthcoming Budget 2006. In its pre-budget submission presented to Brian Cowen T.D, Minister for Finance, the IHF also strongly recommends the provision of an extra €15 million for tourism marketing initiatives.   

Stressing that the tourism industry is now at a crossroads in its development, the IHF believes the Government must implement a number of measures to support the sector or there could be severe consequences for its success going forward.  Failure to reform the 13.5% VAT rate and escalating local authority charges which have increased by more than 21% in the past year, will result in Ireland’s largest indigenous industry seeing its success to date eroded.  Increased funding for tourism marketing is also needed if Ireland is to reverse tourism trends in terms of length of stay and regional spread.  The IHF is calling for the Government to recognise the value of funding such marketing campaigns where is it is estimated that every €1 spent on tourism marketing brings in €15 in tourism revenue. 

Ireland is at a competitive disadvantage in Europe in relation to VAT.  The IHF highlights that the Irish hotel VAT rate of 13.5% is the sixth highest in Europe and the second highest of the Eurozone nations, behind only Germany at 16%.  However, Ireland’s tourism industry is further disadvantaged as it does not allow businesses registered for VAT reclaim the VAT paid on hotel and restaurant expenditure.  Ireland is the EU country with the highest VAT rate that does not allow such VAT reclaim. An example of this anomaly is that a VAT registered business can reclaim VAT in respect of hotel accommodation and restaurant charges incurred as business expenses in Belfast and cannot do so in Dublin.  This is a particular competitive disadvantage in trying to attract conferences, corporate meetings and incentive travel to consider Ireland as a location for their event

According to John Power, Chief Executive of the IHF, although countries such as Germany, Denmark, the UK, Hungary and Slovakia have a higher hotel VAT rate, that rate effectively becomes zero percent for corporate customers as it can be reclaimed as a business input. Ireland’s competitive disadvantage at 13.5% and its non reclaim position prevents the industry from attracting a reasonable proportion of the €40 billion global conference, corporate meeting and incentive travel business.   

"While a number of other EU countries do not allow this expense, it is balanced by a much lower VAT rate than Ireland. So in effect we are the most heavily taxed EU country in terms of hotel expenditure rates.  We want the Government to make VAT refundable on corporate expenditure in hotels and restaurants particularly for conferences, incentive travel and corporate meetings," says John Power.  

"When these rates are added to the high labour, insurance and local government charges it makes it difficult for Irish tourism to stay competitive.  Tourism trends show that the nature of tourism in this country is changing and that tourists are becoming more demanding in their search for value for money – we need to have Government support to rise to these challenges."

The IHF is also stressing the need for a new model to be put in place to ensure that the method by which local authorities are funded is more equitable.  It believes that the current local authority rates system should be abolished and replaced with a local income tax based on profitability as opposed to property valuations. 

Under the current system there has been a 21.3% increase in local service charges in the year up August 2005, while commercial rates over recent years have greatly exceeded the rate of inflation. 

The IHF is also proposing the introduction of user charges for both businesses and households which would see the level of use determining the amount charged for the provision of waste collection, planning fees and water supply.  The IHF suggests that the Government should provide local authorities with funding for social services such as social housing and assistance to the elderly and the disabled. 

"This is an area that we have repeatedly spoken out about but it is vital that the Government acts now because local authority costs are just spiralling out of all control.  All we want is to ensure that local authority funding is fair, but the current system of seeking excessive revenue from business cannot be sustained.  Implementing these proposals would also broaden the base of those funding local authorities to include all those who benefit from their services.  We believe it is imperative that these changes are implemented now, otherwise the tourism industry will suffer and the economy with it," Mr. Power said.

The IHF also called for the Government to increase the tourism marketing budget by €15 million in the forthcoming Budget.  The industry itself already contributes €160million per annum towards tourism marketing, but in view of the tourism challenges facing the country, the IHF believes that the tourism industry must broaden its appeal to reach new prospects if Ireland is to recapture its market share position. 

That extra funding would consist of:

• €2 million towards developing innovative e-Marketing solutions,
• €3 million as a one off allocation to improving marketing efforts in Great Britain,
• €7 million to provide marketing support to encourage and expand the use of access services into Ireland,
• €3 million to ensure that the third Tourism Brand Ireland campaign is adequately rolled out. 

"An increased marketing budget is vital if we are to encourage more tourists to come to Ireland in the short and medium term.  We have fallen behind our competitors in embracing the power of e-Marketing and a significant cash injection is needed to bring us back up to speed in this respect.  We also need to acknowledge how important the low cost carrier market now is in attracting tourism to any given location.  This marketing effort needs extra funding, as does the support given to new air routes and the car ferry market," said Mr. Power.

"The tourism industry is this country’s biggest indigenous employer with almost 150,000 people in the sector. Its success affects every single city, town and village in this country.  By investing extra money into our marketing campaigns we could expect not only to attract more tourists but an increase in tourism revenue throughout the country, which in turn will increase funds going into the Exchequer. It is an investment that we know gives real returns," he concluded.

ENDS

For information:
Siobhan Molloy/ Jimmy Healy - Weber Shandwick FCC                     
Mobile: 086 8175066 / 087 6479104

Price Increases: Year to August 05

Ireland relative to the EU (of 25) in VAT

As of June 05, HOTREC