Ireland is temporarily dropping VAT for a range of services including restaurants and hairdressers in a bid to revive its economy.

The Irish government is slashing VAT from 13.5% to 9% for a range of services connected to the hospitality and tourism sectors.

The new lower rate comes into effect from July 1 and will stay in place until December 2012, when it comes up for review.

It will not mean more money for the restaurant owners, but will mean slightly lower prices.

The government hopes it will encourage more customers to spend their cash.

Declan O'Luanaigh tax partner at Dublin member firm Orsmby and Rhodes said: "The reduction in VAT being introduced by the Irish government in an effort to create new jobs is very creative.

"It is this sort of approach which is attracting companies to Ireland when many neighbours are struggling to attract new investment due to high taxes."

The move takes its cue from the debate that struggling economies should rise taxes or keep them low to solve their debt problems.

VAT rates in France and Spain are at just 5% and 8% respectively.

Peter Janssen, chairman of the EMEA region of BKR International an accounting and business advisory firms said: "These new regulations will stimulate the national economy in areas where it is especially needed. 

"It is an example for other countries to take this approach to tax too."

SOURCE: Sky News