The Malta Hotels and Restaurants Association said that during another meeting held last week between the Minister of Finance and Parliamentary Secretary for Tourism and the MHRA, it was agreed that Government will cap the rebate to a maximum €1,500,000, although Government’s initial proposal was for less. The agreed sum is estimated to represent close to 1% or half the increase of the contracted business at the former rate of 5%. In spite of MHRA’s objections to the VAT increase on accommodation, Government was adamant that the increase stays but agreed with MHRA to a partial rebate on the signed contracts.
Government had claimed that the VAT increase was introduced to substitute the introduction of an eco contribution/bed tax which was supposed to come into effect by June last year, and intended to be paid directly by ALL tourists visiting Malta. Government had abandoned this scheme on the advice of the Attorney General whose main concern was that the EU Commission may site this scheme as discriminatory on the basis of nationality, MHRA said.
Faced with this situation, the MHRA said it felt it had no other option but to propose to Government to introduce the bed tax to be collected at the hotel. However for reasons unknown to MHRA, Government did not opt for the bed tax which it had itself proposed in the first place and enacted a legal notice for the introduction of a VAT increase. MHRA went on to say that In fact Government just pounced the news about the rise in VAT on hotel accommodation during a final presentation of its budget measures for 2011 at the MCESD Council, just 2 days before the budget was presented in Parliament. MHRA President George Micallef said that, “the scope of the bed tax was to collect more funds from tourists to support MTA’s budget, but instead funds will now end up being paid by the hoteliers. This essentially means that, to a large extent at least €1,500,000 will have to be forfeited between the existing 140 hotels. This sum will in fact go higher, as the hotel industry was not entirely able to put up the rates by an additional 2%, especially in the case of tour operators business, which represents close to 60% of the occupied bed nights for the hotel sector.”
The MHRA said that the VAT increase was not only ill timed, but was introduced without any prior consultation and in breach of a long standing agreement between Government and MHRA. This agreement provided for an 18 month notice when increases were necessary to be introduced by Government, as allocation contracts are signed with tour operators well in advance.
The latest published MHRA results by Deloitte up to Q3 showed a sharp drop in profitability despite the positive tourist arrivals. In fact although arrivals in 2010 reached a record high, the number of occupied nights for hotels was still below the 2008 figures and so was the per capita revenue for hotels, whilst operating costs have since sky rocketed. MHRA said it remains very concerned about declining profitability as a result of the hefty increases in its operating costs and increasing pressures on prices. Eurostat figures show that even before the recession, profitability for hotels and restaurants in Malta were the lowest amongst competing Mediterranean destinations.
The MHRA went on to say that Government argues that the extra money to be collected from the VAT is required to support MTA’s budget, however, MTA’s budget is there to support the entire tourism industry and not exclusively the hotel sector, and that the major beneficiary for tourism earnings is Government itself and indeed the national economy. Consequently Government should not seek to collect funds only from hoteliers.
“The fact that a third of the tourists that come to Malta do not stay in hotels means that Government is losing out on potential earnings from tourists that do not pay any VAT non- registered accommodation. Furthermore, the increase in the VAT may also contribute to steering business away from hotels and other licensed accommodation as tourists will find it cheaper in unlicensed accommodation. Taxing the Hotels further, will only continue to jeopardise the long term sustainability of this important sector of the economy,” George Micallef concluded.