Higher VAT on hotels

Hotel accommodation will rise from five to seven per cent instead of having a 50c bed tax proposed two years ago but never implemented.

The increased VAT rate is expected to yield an additional €6 million in revenue, which will go to pay for advertising Malta abroad.

The Malta Hotels and Restaurants Association said it was “shocked” with the measure, insisting it was not consulted.

MHRA president George Micallef said the association feared the increased tax rate would have a sharp impact on hoteliers because they had already signed contracts for next year.

The government first announced plans for the 50c bed tax for each night tourists spent in paid accommodation in November 2008. The tax had to come into effect on January 1 of this year but it was first postponed to April and eventually never introduced after the Malta Hotels and Restaurants Association asked for its postponement due to the international economic crisis.

The introduction of the bed tax was intended to rake in €5 million.

In the meantime, the association proposed a departure tax but the government disagreed, insisting it would impact Maltese travellers and negatively hit Air Malta.

The Finance Minister, yesterday underlined that all other products and services charged at five per cent would remain so.

After ruling out a reduction in the VAT rate on restaurants last year, there was no mention of it yesterday.

According to the Finance Minister, Malta still has one of the lower VAT rates on accommodation in Europe, ruling out a negative impact on the sector’s competitiveness.

At seven per cent, the VAT rate on hotels is higher than that in Cyprus (five per cent), France (5.5 per cent) and Luxembourg (three per cent) but still lower than that in Spain (eight per cent), Italy (10 per cent) and Greece (11 per cent).

The higher taxation is expected to partially finance the higher budget allocated to the Malta Tourism Authority. Next year, the MTA will have an additional €4 million to spend on marketing, which, at €35 million, is the highest ever budget allocation for the purpose.

Gozo will also have a dedicated marketing fund of half a million euros to promote the island as a separate destination.

The government yesterday also announced a €10 million fund to help tourism operators upgrade their product while €6.5 million will be spent to embellish tourist zones.

The Budget allocated €11 million for the continuation of the Pembroke gardens project and the Buġibba aquarium.

As part of the ongoing development in prehistoric sites, the government pledged an investment of €14 million over the next three years.