Hoteliers remain in the dark about how much of the two per cent increase in the VAT rate on accommodation will be covered by the government, which had promised to consider a part concession on contracts signed before the rise was announced.

The president of the Malta Hotels and Restaurants Association, George Micallef, said hoteliers were starting 2011 without knowing how much of the increase would be borne by the government.

Although a few meetings to discuss the issue had taken place, he said, the matter had been placed on the backburner because of discussions on the future of the national airline, Air Malta.

The unexpected decision to raise VAT on accommodation to seven from five per cent was announced at the end of October, during the Budget 2011 speech.

The measure replaces the original idea of imposing a bed tax on every night spent in hotels, something that was immediately shot down by hoteliers and those involved in the tourism industry. Eventually, the government dropped the idea and replaced it with a flat tax on accommodation but even this idea never took off.

The MHRA had strongly criticised the government for raising VAT on accommodation, saying this would exacerbate the competiveness and profitability problems hotels were already facing.

“Unfortunately, there have not been any developments on how much of the two per cent increase will be covered by a government rebate. The issue was understandably placed on the backburner because of Air Malta talks but we hope to conclude discussions and finalise details at the beginning of the year,” Mr Micallef said when contacted.

Government sources said the Finance Ministry and the Malta Tourism Authority were sifting through the contracts they had received from hoteliers who complained the VAT hike would translate into around €3.6 million in extra costs, as agreements had already been signed.

Around 6,000 contracts were submitted to the government after it announced it would consider a rebate on the increase in the case of pre-signed contracts.

Addressing the MHRA annual general meeting last month, Tourism Parliamentary Secretary Mario de Marco said the concession being considered would only cover part of the two per cent increase.