Indirect Taxes

Key measures

From 1 July 2026, the VAT rate on food and catering and hairdressing services will be reduced from 13.5% to 9%.

The reduced 9% VAT rate on gas and electricity bills, originally due to expire on 1 November 2025, will be extended until 31 December 2030.

The VAT rate applied to the sale of new apartments will be reduced from 13.5% to 9% from 8 October 2025 until 31 December 2030. 

The flat-rate addition, which compensates non-VAT registered farmers for the VAT they cannot reclaim on their expenses, will decrease from 5.1% to 4.5%, effective from 1 January 2026. 

The carbon tax will rise to €71/tonne of carbon dioxide emitted in accordance with the trajectory set out in the 2020 Finance Act. This increase will be applied to auto fuels from midnight of 7th of October 2025 and to all other fuels from the 1st of May 2026. 

Excise duty of 50 cent will be added to a pack of 20 cigarettes with a pro-rata increase on other tobacco products. 

Vehicle Registration Tax relief for electric vehicles, which was due to end on the 31 December 2025, will be extended to 31 December 2026. 

Who will be affected and when?

Businesses in the food and catering and hairdressing sectors will benefit from the reduced VAT rate of 9% starting 1 July 2026.  

Households and businesses will continue to benefit from the reduced 9% VAT rate on gas and electricity bills until 31 December 2030. This would help manage the impact of energy price fluctuations. 

Property purchasers of new apartments will see a reduced VAT rate of 9% applied from 8 October 2025 until 31 December 2030, which would potentially lower the overall purchase price.

Farmers who are not VAT registered will receive a slightly reduced flat rate addition of 4.5% in 2026, which maintains support for this sector based on updated economic data. 

Passenger cars and commercial vehicles powered only by an electric motor will continue to be eligible for relief from vehicle registration tax (VRT) up to €5,000 if registered before 31 December 2026. 

What now? 

Overall, the Budget’s indirect tax measures demonstrate a balanced approach to supporting key sectors and providing ongoing relief to households and businesses. Stakeholders should monitor the implementation timelines closely to ensure compliance and to maximise the benefits of these changes.  

Our view 

We welcome the extension of the reduced 9% VAT rate on gas and electricity bills to 2030 which recognises the burden sustained energy cost increases has placed on households and businesses. 

We also welcome the reduction of VAT to 9% for food and catering and hairdressing services from mid-2026 which provides targeted relief to these sectors which have faced significant challenges in relation both to cost inflation and demand in recent years. 

The reduction in VAT rate on new apartments reflects the government's commitment to increase housing supply and address affordability challenges and it is hoped will play a useful role in increasing the supply of apartments.  

The continued VRT relief for passenger cars and commercial vehicles highlights the government’s focus on encouraging environmentally friendly transport options.