A partial government rebate of VAT charged in line with the increase announced in the Budget will be capped at €1.5 million, the Malta Hotels and Restaurants Association said today.
The government announced in the Budget that VAT on tourist accommodation would rise to 7% from 5%. The MHRA had protested that the increase was unfair as contracts had already been negotiated on the basis of the old rate.
It said today that the cap was agreed in talks with the Ministry of Finance and the Secretariat for Tourism, adding that the government’s initial proposal was for less.
"The agreed sum is estimated to represent half the increase of the contracted business at the former rate of 5%," the association said.
"In spite of MHRA’s objections to the VAT increase on accommodation, Government was adamant that the increase should stay, but it agreed with MHRA to a partial rebate on the signed contracts," the association said.
The MHRA kept up its complaints that the VAT increase was not only ill-timed, but was introduced without any prior consultation and in breach of a long standing agreement which, it said, provided for an 18-month notice when increases were to be introduced by the government,.
The association said it remained concerned about declining profitability despite the positive tourist arrival figures. Although arrivals in 2010 reached a record high, the number of occupied nights for hotels was still below the 2008 figures and so was the per capita revenue for hotels, whilst operating costs had since sky rocketed.
"The government argues that the extra money to be collected from the VAT is required to support MTA’s budget, however, MTA’s budget is there to support the entire tourism industry and not exclusively the hotel sector, and that the major beneficiary for tourism earnings is government itself and indeed the national economy. Consequently Government should not seek to collect funds only from hoteliers," the association said.
MHRA president George Micallef added that: “The fact that a third of the tourists that come to Malta do not stay in hotels means that Government is losing out on potential earnings from tourists that do not pay any VAT non-registered accommodation. Furthermore, the increase in the VAT may also contribute to steering business away from hotels and other licensed accommodation as tourists will find it cheaper in unlicensed accommodation. Taxing the Hotels further, will only continue to jeopardise the long term sustainability of this important sector of the economy.”
GOVERNMENT STATEMENT
The Finance Ministry and the Secretariat for Tourism said the rebate was addressed at tour operator business for the period January to September.
The rebate rate would be 1% (1/7 of the VAT collected from tour operator business). Should requests for rebates exceed €1.5m, payments would be made pro-rata.
The rebates would cover contracts registered with the MTA.
In the forthcoming Budget, the government would allocate more funds to enable hoteliers to improve their product and services. The government would also invest more on tourism promotion.
The VAT increase substitutes the 50c bednight tax announced in the 2009 Budget which was never introduced.