Tourism delivers results to Malta Inc. Facts speak for themselves. Indeed, with an overall contribution of 30 per cent to GDP, the Maltese tourism industry is a leader across the EU states.
Such positive results are, however, not to be taken for granted. They are the result of a concerted effort by various stakeholders which have now set the tourism industry on the right track.
Being on the right track, however, doesn’t mean a guaranteed ticket to the desired destination.
Along this process, MHRA has repeatedly lamented about sustainability issues in the hotel sector, which is at the crux of the wider tourism industry. If the hotel sector fails to deliver, then the tourism industry will crumble.
Over the past three years, our call to the authorities has been loud and clear: the Government needs to restore sustainability in the hotel sector by: 1) increasing arrivals in the shoulder and the winter period to generate increased revenues without increasing costs; 2) lowering the utility rates by 4c a kilowatt; 3) returning VAT from the hiked up seven per cent to the original five per cent.
At the time of revision this meant an increase of 40 per cent to what used to be paid before and had to be absorbed as additional costs to retain competitiveness.
MHRA has already stated it is satisfied to see that the Malta Tourism Authority in collaboration with MHRA, Malta International Airport, Air Malta and other stakeholders is striving to address the seasonality issue.
We have also stated and reiterate that MHRA is very confident that we will have an increase in tourist arrivals in the forthcoming winter season over the previous one. Long-term success on this front, however, will depend on pursuing the right mix of public policies to maximise the potential of Malta’s hospitality and tourism product.
It is important that we note that this has nothing to do with political ideology but, rather, has everything to do with national ambition.
Our efforts now need to ensure that the national tourism strategy is geared to reflect the needs of a broad visitor economy. This requires a more coherent and unified approach to policy.
After a long campaign to reduce energy costs, MHRA is satisfied that this issue featured high on the pre-election agenda and we are now seeing that the Government is on track to a reduction of 25 per cent in our bills by 2015.
As to our call to return VAT back to five per cent, we are confident the Government will take heed of our plight. Why are we so confident? First of all, this is not a request for discriminatory stimulus or support for the hotel sector. This policy is suggested as a genuine proposition to support long-term and sustainable growth for the economy.
Although global tourism levels are set to increase at a steady annual rate, the fact remains that some nations will do better than others. As to how Malta will measure up in the coming months and years will significantly depend on how much the Government fully recognises the importance of hospitality and tourism to the national economy.
Our proposition to return to the five per cent hotel VAT is a low-risk investment by the Government to stimulate the national economy. The EU permits member countries to apply reduced VAT to only a limited number of sectors and tourism is included whereas most goods and services are not. Nearly all EU member countries exercise this option and have been proved to work. The track record across Europe shows that a reduction in VAT stimulates investment, creates employment and boosts growth.
The immediate impact would be a loss of VAT yields. However, the base on which VAT is levied will not remain constant. If we consider to have 110 hotels and assume that, over a span of 10 years, 11 eligible hotels undergo refurbishment investments per annum, assuming each of these have an average of 200 rooms and will be investing €25,000 per room, this will generate a direct return to the Government of about €10 million from VAT. Indeed, the real return will be much greater when considering the multiplier effect.
A lower indirect tax rate will feed through to more feasible and sustainable margins, which will stimulate re-investment, benefiting the whole economy and not just the tourism sector.
Using reasonable and plausible assumptions, the loss of fiscal income from the review in VAT will more than be made good by additional income tax receipts, savings in social security payments and an increase in profits, corporation tax payments and tax on dividends.
It is also important to remember that the hotel sector is labour intensive and provides jobs at all levels. If the VAT is reviewed back to five per cent, the hotels sector has already expressed its openness to entering a collaborative agreement with the Government.
As the old English axiom goes, a stitch in time saves nine. MHRA asserts that an injection in the hotel sector will lead not only sustain the success achieved to date in the tourism industry but will serve as a stimulus for wider economic growth. That is why we are confident the Government will heed our request.
Tony Zahra is president of the Malta Hotels and Restaurants Association