Business groups bemoan VAT increase

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Pictured: Ronald Kers of Valeo Foods Group (Photo by Dave Warren/Picture Team)

The rise in VAT from 21% to 23% announced in the recent budget by Finance Minister Micheal Noonon is a real concern to retail business



16 December 2011

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The rise in VAT from 21% to 23% is bad news for the retail sector. Retail Ireland has criticised the decision to increase VAT in the Budget and said the government should review the impact of the rise on tax revenues and reverse the increase if it is not working.

Retail Ireland chairman Frank Gleeson said that he does not believe the VAT increase will have the desired effect of increasing revenue by €670 million. “It will discourage people from spending and retailers will suffer. Thousands of jobs have already been lost in the retail sector and this is another blow to the many businesses already struggling to survive.

“Retail sales have fallen by over 20% since 2008 due to the recession and price reductions. At the same time the savings ratio has increased from approximately 2% to 12% due to weak consumer confidence. There is every chance that the VAT rise, coupled with social welfare cuts, higher charges for services and increased fuel duties will see consumers cut back on spending even further. This will undermine growth and economic recovery.”
Property consultants CBRE also expressed disappointment in the VAT increase saying it will put further undue pressure on the retail sector.

The property consultants were however encouraged to hear that the government will not be proceeding with plans to retrospectively review rent review provisions in existing business leases as they had proposed in the Programme for Government saying that the uncertainty that this proposal created has effectively stalled transactional activity in the investment sector of the Irish market for the last 12 months.

Speaking on the day of the Budget, Marie Hunt, executive director at CBRE, Dublin said: “We broadly welcome the confirmation from Government that they now no longer intend implementing retrospective legislation with regard to rent review provisions in business leases. This was clearly the single biggest obstacle to transactional activity in the investment sector of the market over the last 12 months and we are happy that this has been cleared up today. The removal of this uncertainty along with the reduction in stamp duty for commercial property and capital gains tax changes for properties purchased over the next two years will enable transactional activity to resume in this sector of the economy”.

However, this is bad news for already struggling lease-holders who were promised by the government during its election campaign that it would abolish upward-only rent reviews for all commercial leases. Fine Gael had said: “We will pass legislation to give all tenants the right to have their commercial rents reviewed in 2011 irrespective of any up-ward only or other review clauses”.



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