MHRA calls for VAT to be restored to five per cent
The Malta Hotels and Restaurants Association has called for VAT applicable to the industry to be restored to the pre-2011 rate of five per cent from the current seven in the next Budget in a bid to bring sustainability back to the hospitality sector.
In its recommendations to the pre-Budget 2013 document, the association calls for support for arrivals to be increased in the shoulder and winter months so that revenues can rise without being hampered by added costs.
The association is also proposing utility rates be lowered by 4c a kilowatt as a way to reduce energy costs across the industry by some €6 million. It is also recommending utility billing company ARMS Ltd be empowered to offer customers in the hospitality sector a maximum credit term of 120 days to ease cash flow management.
In its position paper, the association appeals to the authorities for caution and prudence, emphasising how the industry was highly sensitive to changes in its internal and external operating environment.
Despite record arrival numbers this year, research conducted among the MHRA’s members found that increases in spend and stays had not fully reflected in the businesses’ profitability which continued to be impacted by rising costs.
The document points to costs increasing from the indirect effects of inefficient management of the utility service providers as hampering both hotels and restaurants.
“MHRA’s greatest concern is that this situation is leading to serious sustainability issues which, in the medium term, may hamper the tourism industry and, in the long-term, cripple it,” the document warns.
Association president Tony Zahra said the two per cent VAT hike, which had cost the industry an additional €8 million a year, had to be absorbed by operators to avoid impacting their product’s competitiveness.
“Over the past five years, the industry has cumulatively lost €10 million,” Mr Zahra told The Sunday Times. “This year, despite the increased revenue, it was practically cancelled out by increased costs. We have all worked much harder to remain where we were.
“If the industry does not return to profitability in three to five years, we risk ending up with a poor offering. Operators will just not have the funds to refurbish their property and polish their service levels.”
Mr Zahra pointed out that for every €100 spent by a visitor to Malta, the government retrieves €30. Increases in tourist spend this year translated into considerable additional revenue for the government thanks, primarily, to the efforts of the hotels and restaurants industry.
He explained how MHRA research found that for every €1 spent in the EU countries where energy is generated using oil, citizens get 50c worth of energy. Maltese households and businesses collected only 25c worth of energy.
MHRA’s position paper also calls for additional funding for the Malta Tourism Authority for it to be better armed to increase seat capacity from under-served markets, particularly in the winter and shoulder months.
In turn, the association pledges to improve marketing tools to promote a consolidated identity of Malta as a unique tourism destination, particularly on social media. It offered to spearhead programmes to act as a catalyst for investments by private bodies to improve the Malta product, and to carry out research with the private sector in a bid to improve the industry’s prospects.
Other recommendations call for a reduction in the regulatory burden for small businesses, better maintenance of public areas, and improved domestic transport. It asks for further investment in beaches and their environs, and the development of new beaches.
The association requests improvements in safety and security, better funded local councils, and increased investment in industry-specific training.
The MHRA urged authorities to address issues like unlicensed tourist accommodation to seek increased public revenues.
A 2011 MHRA report found unlicensed tourism accommodation accounted for around €24 million in annual revenue, implying a loss of €1.4 million through VAT and other dues. No measures or efforts have been made by the authorities to curb this abuse, the MHRA pointed out, warning that the situation could “only get worse”.