Dublin: The Irish government has announced a reduction in the VAT rate for food, catering businesses, and hairdressing services from 13.5% to 9%, a move aimed at easing financial pressures on small and medium-sized enterprises. However, the measure will not take effect until July 1, 2026, sparking criticism from industry groups over the delay.
According to the Department of Finance, the VAT cut will cost the Exchequer €232 million in 2026 and €681 million annually thereafter. The reduction was a key pledge in the government’s programme and is expected to support more than 150,000 jobs nationwide, Finance Minister Pascal Donohoe said.
“This measure reflects our commitment to helping small businesses that continue to face rising operational costs,” Donohoe explained, describing it as a long-term investment in Ireland’s hospitality and service sectors.
However, the opposition has accused the government of favouring large multinational chains under the guise of aiding small enterprises. Social Democrat finance spokesman Cian O’Callaghan criticised the move, claiming it would “deliver windfall profits to multinational franchises like McDonald’s and Starbucks,” which, he noted, reported substantial profits — McDonald’s Ireland alone earned €42 million last year.
Rejecting the criticism, Enterprise Minister Peter Burke said the VAT cut was a permanent measure intended to strengthen small businesses. “Seventy-five percent of establishments benefiting from this change employ fewer than ten people. These are local businesses, run by members of our own communities,” Burke said.
Industry Response: Support Mixed with Concern Over Delay
The announcement has drawn mixed reactions from industry representatives.
Adrian Cummins, Chief Executive of the Restaurants Association of Ireland (RAI), welcomed the decision but warned that the 18-month delay would place additional strain on businesses already grappling with rising costs. “There’s an extra 6.5% increase in payroll costs from January 1, which will make operations even more challenging before the VAT cut takes effect,” Cummins said.
The Irish Hairdressers Federation (IHF) also welcomed the reduction but described the postponement until mid-2026 as “disappointing and ill-timed.”
Meanwhile, the Licensed Vintners Association (LVA), representing Dublin publicans, expressed satisfaction with the measure, calling it a “positive signal” for the hospitality sector.
The Irish Tourism Industry Confederation (ITIC) urged the government to implement the rate cut sooner, saying the tourism industry — Ireland’s largest indigenous employer — needs immediate support. “The VAT cut will undoubtedly boost the sector, but early implementation would deliver a more meaningful impact,” said Eoghan O’Mara Walsh, ITIC CEO.
However, labour representatives were less enthusiastic. Laura Bambrick, Social Affairs Officer at the Irish Congress of Trade Unions (ICTU), described the VAT cut as “an exaggerated and unjustifiable subsidy,” arguing that the funds could be better used to address wage and cost-of-living challenges.
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