Call to keep low 9% Vat rate for cafes and shops

The proposals come amid a debate about the high €527m annual cost in lost tax revenue from the reduced rate of 9% which former Finance Minister Michael Noonan cut from 13.5% at the height of the jobs crisis seven years ago.

The low rate, which covers holiday accommodation, restaurant services, newspapers, hairdressing and various entertainment services, has been attacked by trade unions and other critics as providing a large subsidy to huge hotel chains, which have raised prices as the tourist market booms.

However, Ibec’s Retail Ireland is concerned that small service retailers such as cafe owners who provide large amounts of employment will become “collateral damage” in the debate and lose out even though they account for only a small fraction of the annual cost to the state of the low rate.

In a pre-budget submission, director Thomas Burke said small retailers selling newspapers, coffee, and food, as well as hairdressers, should be allowed to continue to benefit from the reduced rate and should be exempt from any move by Mr Donohoe to increase the rate back up to 13.5%.

Mr Burke said ways could be found to exempt small retailers from any increase.

In an annual assessment, Finance Department officials cited Revenue Commissioner estimates that showed restoring the 13.5% rate for all businesses favoured by the lower rate since 2011 would harvest an additional €527m in revenues.

The measure was envisaged originally as temporary. It has cost the State €2.7bn since its introduction, according to the Finance Department assessment.

Mr Burke said providing a research and development tax credit to help retailers build websites would cost the exchequer €13m to €15m a year.

It would also help the State by stemming the revenues lost to large international online retailers.