Funds to invest in tourism industry

The article entitled Hospitality Industry In For A Shock (January 1) is based on wrong assumptions and factual inaccuracies and, as a result, arrives at the wrong conclusions.

During the Budget speech of October 2008, the government announced it was going to introduce a 50c per night revenue-generating measure tied to accommodation. This was crucial to allow the government to continue investing in tourism. The encouraging results we are achieving in tourism could not have happened had the government not increased its investment in tourism substantially. Suffice to say the Malta Tourism Authority’s budget has increased from €28 million in 2008 to €35 million this year. Concurrently, the government is spending millions of euros in upgrading the infrastructure and the tourism product. This is leaving the desired results.

It is expected that tourist arrivals in 2010 will have surpassed the record 1.29 million set in 2008 by about 40,000, to reach 1.33 million. In spending terms, tourism expenditure in 2010 is estimated to have reached €1.1 billion representing an increase of €205 million over 2009 and an increase of €60 million over 2008. These results are the best way of ensuring a viable operation for private stakeholders in the industry.

It was moreover stated in the October 2008 Budget speech that the 50c per night proposal would only come into effect on January 1, 2010, more than a year later. In July 2009, however, the Malta Hotels and Restaurants Association asked the government to postpone the measure to April 1, 2010, which request was acceded to.

Before April 1, 2010, members of the industry asked the government to change the 50c per night proposal to a €3.50 coupon to be presented by the departing tourist at the airport prior to departure. Subsequent studies showed, however, this proposal could not be implemented because its legality was questionable. As a result, no measure was introduced on April 1, 2010.

The industry was asked to come up with a viable alternative and at a meeting held in summer 2010, for which MHRA representatives were present, the Minister for Finance, the Economy and Investment said an increase in VAT on accommodation was being considered as an alternative measure. In the absence of any reasonable alternative being made, the government announced in its Budget speech of October 2010 that VAT on accommodation would increase from five to seven per cent. This proposal is therefore substituting the 50c per night proposal made in the October 2008 Budget.

It is therefore incorrect to state that “the VAT increase was unexpected and not mentioned before the bombshell was dropped during the Budget speech” or that the tourism industry’s concerns were ignored.

It is further incorrect to state the tourism accommodation industry is “in for an unpleasant surprise” when it learns that the rebate the government is considering on the two percentage point increase will cover only part of the increase in VAT on accommodation.

In a statement issued last October 28, the Finance Ministry was clear on the fact it was only considering a rebate for a specific period of time and for contracts that had already been signed with tour operators. The statement explained that operators signing contracts after the Budget speech for 2011, during which the increase in VAT on accommodation was announced, would not be considered for such rebate.

The government always said it was prepared to consider only a partial rebate. The government never said or gave the impression it would grant a full rebate. The hoteliers were fully aware of the government’s position as this was repeated time and time again in meetings held between government officials and hotel representatives. It was also publicly repeated by the Parliamentary Secretary for Tourism, Mario de Marco, during the MHRA’s annual general meeting on November 26 for which members of the media were present and an item appeared on The Sunday Times (December 31) clearly saying “the government is actively considering a rebate on part of the incremental VAT for a transitional period of time”.

Therefore, the assertion on which the whole January 1 article was based, namely, that the hospitality industry was expecting a full rebate for the full duration of contracts signed, is completely wrong. Indeed, a circular issued by MHRA to members on December 31 said that “although we can reaffirm the government will be applying a partial rebate of the additional two per cent VAT rate on the contracted business as per signed contracts, we still need to ascertain the quantum, period of application and methodology of the scheme”.

The government could have introduced this revenue measure the way Rome introduced its bed tax – overnight. It could have decided not to give any rebate given this measure was long overdue.

This government considers tourism as a main driver for economic growth and has worked hard with all tourism stakeholders to improve the profitability of the industry. Our efforts are being rewarded. Three out of the past four years were record years. In the first 11 months of this year, tourism revenue surpassed €1.1 billion.

The government is committed to continue working with the stakeholders to ensure that this industry continues to thrive and generate economic wealth. At the same time, the government is committed to a responsible decision in terms of allocating rebates or subsidies. These are ultimately paid out from our taxes and therefore we have to ensure they are justified and fair.

The author is communications coordinator at the Ministry of Finance, the Economy and Investment.