MPs recommend tax subsidy for tourism in Northern Ireland

In particular, tourism operators point to the lower rate of VAT applied to the tourism and hospitality sectors in the Republic, as well as lower air travel taxes. The UK has a standard rate of VAT of 20 per cent for the tourism industry, whereas the Irish Republic recently announced that it would continue to apply a rate of 9 per cent for tourism-related businesses. The Republic has applied various reduced rates of VAT on hotels and restaurants since 1986. While the UK remains in the EU it would be permitted by the EU to lower its rate but only for the UK as a whole.

Context

There were an estimated 2.48 million external visitors to Northern Ireland in the 12-month period to September 201[GC1] 6 which is eight per cent higher than in the previous 12 months. In the 12 month period to September 2016, tourism was worth £821 million to the Northern Ireland economy, of which £606 million came from outside the Province, a figure which has more than doubled since 2002.

Powers relating to taxation policies which affect the tourism industry in Northern Ireland, such as VAT and Air Passenger Duty, remain the responsibility of the UK Treasury.

Report

The Committee took oral evidence from a wide range of industry representatives, including the Campaign to Cut Tourism VAT, the Northern Ireland Hotels Federation, Hospitality Ulster, Tourism Ireland, Tourism NI, the Irish Hotels Federation, Belfast City Airport, Belfast International Airport and the Financial Secretary to the Treasury.

Recommendations / findings in the report

VAT

• The Committee believes as a matter of principle that the UK Government should have the power to implement regional variations in tourism VAT
• The Republic of Ireland’s decision to reduce its rate of VAT on tourism in 2011 brought substantial economic benefits to its tourism industry
• There is no need for a UK-wide decision because the UK is leaving the EU
• The Committee estimate that a reduction in tourism VAT from 20 per cent to 9 per cent in Northern Ireland would incur a direct cost of approximately £70 million per year
• No consensus between industry and government on the true cost or benefit of reducing tourism VAT across the UK. The UK Government, Northern Ireland Executive and tourism industry should build greater consensus around the true cost, or benefit, to the Exchequer of reducing tourism VAT
• The Government has recognised the problem caused to Northern Ireland by the lower rate of Corporation Tax in the Republic, but seemingly not the loss of revenue to the tourism industry
• Treasury should be far more transparent with the tourism industry and the Northern Ireland Executive in terms of the assumptions and methodology on this matter

Air Passenger Duty

• The analysis of the costs and benefits of abolishing Air Passenger Duty (APD) in Northern Ireland commissioned by the Northern Ireland Executive does not command the support of the air travel industry
• The Government and the Northern Ireland Executive should re-examine the economic case for abolishing APD on flights to and from Northern Ireland
• Abolishing APD on all flights into Northern Ireland from Great Britain and on all direct flights from Northern Ireland to any destination, will greatly improve connectivity for Northern Ireland
• The Executive should seek the full devolution of APD.

The full report can be read here.

By Hamant Verma