The tourism accommodation industry is in for an unpleasant surprise when it learns that the rebate the government is considering on the two per cent rise in VAT, which comes into force today, will likely fall below its expectations.
Not only will hotels be compensated for only part of the increase in VAT on accommodation but the rebate will probably not even cover the full duration of the contracts they had signed before the rise was announced. The rate has been increased from five to seven per cent.
This means hoteliers will probably have to cover quite a chunk of the rise after all, which in total translates into around €3.6 million in extra costs for those who have already signed agreements with tour operators.
English language schools, many of which provide accommodation to foreign students, are in an even worse situation because the possibility of a similar concession has been decisively shot down by the government. The cost of the VAT rise for them has been estimated at roughly €500,000.
The Malta Hotels and Restaurants Association had strongly criticised the government over the VAT move, saying it would exacerbate their competiveness and profitability problems.
Following incessant pressure, the government had given hotels some time to submit the contracts they had signed with tour operators before the rise was announced in the Budget for 2011, promising to consider a partial rebate. Since then, the government and the Malta Tourism Authority have sifted through about 6,000 contracts.
A final decision on what proportion of the increase will be waived and the period to be covered by the concession is expected to be taken within two weeks.
Hoteliers were hoping to have the full contract periods covered by the concession as, they argued, the VAT increase was unexpected and not mentioned before the bombshell was dropped during the Budget speech.
Although a few meetings to discuss the issue have been held, the matter has been put on the backburner because of discussions on the future of the national airline Air Malta.
When contacted, a Finance Ministry spokesman said: “...The quantum of the rebate and the length of the period it will cover is a matter that has not yet been finalised and is linked to wider budgetary considerations.”
The ministry spokesman clarified that the rebate, once given, would be paid retroactively as hoteliers were expected to start charging at seven per cent on accommodation from today.
Language schools were hoping to be afforded the same treatment so far granted to hotels when they were asked to submit contracts signed before the Budget announcement for a possible concession.
However, when The Times asked if their plea would be considered, the ministry ruled out the possibility and said no talks would even take place.
Alex Fenech, president of the Federation of English Language Teaching Organisations, said some schools had set their accommodation prices at the end of last summer and bookings for 2011 had long been coming in before the Budget announcement.
He said the increased VAT rate on accommodation did not directly affect families who hosted foreign students because the net rate schools would pay them next year remained unchanged.
However, the schools could not suddenly raise their prices for students above those published. “Therefore, they will have no alternative but to absorb the costs themselves,” he said. A very rough estimate of the cost they will have to incur is in the region of €500,000.
Apart from increasing expenses at a time when the industry was still recovering, Mr Fenech said “the detrimental effect is compounded by the fact that no consideration seems to have been given to the need for a lead time, which would allow schools to incorporate the increased VAT rate in their prices”.
In essence, it is a similar argument to the one made by hoteliers, who complained they had signed contracts for the coming months citing prices which assume a five per cent VAT rate.
However, when The Times asked the ministry about Feltom’s wish for a concession similar to that being considered for hotels, the spokesman categorically ruled it out.
“The answer is no. There will not be a similar arrangement in the case of language schools,” a ministry spokesman said curtly.
Feltom had written to the ministry to fix an appointment to discuss the issue but only received an acknowledgement.
“The fact we did not even manage to fix an appointment to discuss the matter confirms our impression the government is ignoring the tourism industry’s concerns and failing to understand we plan months in advance,” said Mr Fenech.