The Malta Hotels and Restaurants Association has asked the government to consider the introduction of a VAT redemption scheme for international conferences in the upcoming budget, a measure which it said could give a major boost to a niche market.

In a 27-page report presented to the government, the MHRA highlighted Malta's strengths and shortcomings in the tourism industry and proposed a series of measures intended to give the sector a helping hand.

Research carried out by Deloitte & Touche suggests that major competing Mediterranean destinations have seen an increase in tourism of five per cent or more over a five-year period, notwithstanding international events that have dealt a blow to tourism.

Deloitte's research indicates that Malta has lost market share in all its core markets, including the UK, Germany, Italy and the Netherlands over the last five years.

The major recommendation made by the MHRA is a legal loophole being resorted to by 22 EU states which would enable those holding conferences in Malta to benefit from VAT refunds.

To date, VAT on conferences held in Malta by destination management companies or directly by foreign organisers is irrecoverable by the end-users as they typically do not have a VAT-registered business activity in Malta.

However, with EU membership, the chances are that the end-user will have a VAT-registered business activity somewhere in the EU, which could apply for such a refund.

While such entities are generally entitled to recover Maltese input VAT, certain local restrictions exist, rendering VAT incurred in the course of providing hospitality and entertainment unrecoverable.

The MHRA explained that EU regulations permit individual member states to introduce local regulations that permit the recoverability of this VAT, through a local definition of "business expenditure", which can include "business tourism".

In practice this is something that is done in a number of EU member states whereby conferences are reclassified as marketing costs and their input VAT becomes recoverable. Similarly, staff training expenses are generally recoverable for input VAT, covering in-house conferences and staff incentive travel events.

The MHRA also appealed to the government to extend the reduced rate of VAT to restaurants on food sales, as offered by Italy, Greece and Spain.

The association also urged the government to retain the five per cent VAT rate for hotels, warning that any change in this rate could be catastrophic for the industry.

"The accommodation sector remains fragile and now is not the time to consider any changes in this regard," the MHRA cautioned.

The association suggested a change to local council funding to ensure that the funding mechanism reflected the existence of catering establishments, hotels and key sights.

MHRA outgoing president Winston Zahra said that for every extra 10,000 tourists in Malta, no less than Lm2.5 million in economic activity is generated, which in turn results in Lm375,000 income to the government.

"If one extrapolates this to an increase of 300,000 tourists spread over a year, it would mean the generation of Lm90 million in economic activity and a direct contribution to the government of over Lm13 million.

"The MHRA believes that the strengthening of the tourism industry is a very direct and effective way of substantially contributing towards the reduction of the national deficit."

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.