One of Ireland’s leading economists has warned over €7 million a year could be at risk in Kerry if a controversial plan to hike the threshold for tourist VAT refunds goes ahead.
t present any tourists visiting Ireland from outside the EU can claim a refund on any VAT they paid on goods here.
Currently refunds are available no matter what the goods cost but the current proposal would see the Retail Export Scheme (RES) dramatically changed with refunds limited to purchases of €175 and over.
The step is being taken to protect Ireland’s tax take in the event of a ‘no deal’ Brexit but retailers say it will cost them millions by taking away the incentive for non EU tourists – particularly those from the US – to spend some extra money while holidaying here.
As one of Kerry’s premier tourist destinations Kerry would be hit particularly badly by the planned changes.
Last year Kerry was Ireland’s third biggest beneficiary when it came to non EU tourist spending, accounting for €11.9 million of all RES qualified transactions in 2019.
Of the 138,245 transactions in Kerry, over 90 per cent – worth over €7 million of the total – were for under €175.
In a report commissioned by the ‘Stop Another Tourism Tax’ Campaign – an alliance of independent Irish retailers and tourism businesses – economist Jim Power has raised serious concerns about the proposal which, he says, will severely impact on regional areas.
In his report, Mr Power estimates that almost 85 per cent of the refunds under the current scheme are on purchases worth far less than €175 and that this business could dry up if the new threshold is introduced.
In his study Mr Power says the change will effectively hike the “real price” of tourist purchases by 23 per cent overnight.
“This would be very significant and would undoubtedly undermine such spending and the overall contribution of tourism to the economy,” he writes
Mr Power argues that the current VAT refund scheme generates around €108 million with a large portion of the spend in regional areas and especially on the ‘Wild Atlantic Way’.
The Quills Woollen Market chain is one of the Kerry businesses that will be hardest hit by the changes.
With the majority of the well known chain’s trade coming from outside the EU and its customers spending about €70 on average Manager Padraig Quill said the new measures would have a devastating effect on business.
“It’s going to have huge impact on us and on all our suppliers and it will hit the smaller tourist shops very hard,” Mr Quill said.
“When you have someone buying a €60 or €70 Aran jumper and you can tell them they’ll get about 17 per cent back it’s a major factor. It’s a huge selling point for us,” he said.
At its core, Mr Quill believes, the measure targets the wrong people and will punish already struggling businesses while doing little for the exchequer.
“80 per cent of our business is from the US and Canada. In all about 85 per cent is from outside the EU. Visitors from the UK are only about two or three per cent. When they come over they aren’t spending in tourist shops they spend on food, drink and hotels which aren’t refundable,” he said.
“Whoever came up with this didn’t think hard enough about it. Things are hard enough already, all we’re asking for is fairness.”
Under current rules non-EU tourists can obtain a VAT refund when they buy goods (not services such as meals, drinks or hotel rooms) of any value.
The new rules would see refunds provided only on purchases of items worth €175 or more.
Ireland’s refund threshold would immediately soar from the lowest in Europe to joint highest along with France and Slovakia.
In 2019 the VAT on 138,245 transactions, worth a combined €11,370,657, that were made in Kerry was refunded to tourists under the Retail Export Scheme.
Of these transactions 90 per cent – a total of 124,468- were for under €175. The average value of these purchases was just €65.
The total value of the ‘under €175’ transactions amounted to €7,191,027 and it is feared much of this business will be lost if the VAT refund rules are altered.