Malta retains right not to charge VAT on medicines, food

Malta has retained the right not to charge VAT on food and medicines once the current derogation expires next year, the government announced this evening.

The decision was taken at a meeting of EU Finance Ministers in Brussels.

Malta has had a temporary derogation not to impose VAT on food and medicines since it joined the EU in 2004, having argued that it should not be made to impose the tax once it was not charged by Britain and Ireland.

The government said today's decision was achieved after 'long and hard' negotiations by Malta.

"This is a major victory for Malta, achieved after very long discussions," Finance Minister Tonio Fenech said.

He said the agreement would also enable Malta to charge VAT on services, such as care for the elderly, at a reduced rate.

EU law lays down that VAT on food and medicine should be charged at a minimum of 5% but Malta argued that it had particular conditions because of the small domestic market and increased transport costs because it is an island.

The government said that over the past few weeks the issue was raised directly by Prime Minister Lawrence Gonzi with German Chancellor Angela Merkel, while Mr Fenech spoke to a number of European finance ministers.

Mr Fenech thanked Richard Cachia Caruana, Malta's permanent representative to the EU, for having helped bring this agreement about.