VAT rate on restaurants reduction request turned down

The request to reduce the VAT on restaurants to five from 18 per cent is being turned down after the government established it did not benefit the consumer of the country.

The government yesterday tabled a 40-page report drawn up by the Finance Ministry's Economic Policy Division on the impact of reducing this rate.

Mr Fenech said the request did not benefit the economy and the loss in revenue would have to be made up through more taxes.

This report follows repeated calls by the Malta Hotels and Restaurants Association, among others, which had insisted a reduction of VAT would help the industry.

The report concludes that, through such a measure, the country would effectively lose €29 million in 2010 and €23 million in 2011. Moreover, lowering the VAT rate would not affect the industry as tourists attached more importance to the cost of the flight and the hotel.

The technical study also concludes that, if this reduction is passed on in full to the consumer, the economic growth in 2010 will only be of 0.2 per cent, increasing to 0.6 per cent in 2011. The experience of Portugal and France showed reducing the rate was not passed on to the consumer and its economic impact was relatively low.

Addressing journalists prior to reading out the Budget speech, Finance Minister Tonio Fenech said, when presented with these findings, the MHRA seemed to prefer continued investment in tourism through funds for MTA.