Hotels will have had to settle for paying more than €2 million collectively to cover part of the two per cent increase in the VAT rate on accommodation after the government agreed to cap the promised rebate at €1.5 million.
This amount covers less than half the €3.6 million hoteliers estimated the VAT increase would cost on contracts signed before the measure was announced in October.
The new VAT rate of seven per cent on accommodation came into force on January 1. The rebate will cover the period of January to September on contracts which had been submitted to the Finance Ministry and the Malta Tourism Authority.
Although pleased with the rebate on this “ill-timed” measure, hoteliers are still concerned about deteriorating profitability brought about by an increase in costs, particularly for water and electricity, which had “sky-rocketed”.
Malta Hotels and Restaurants Association president George Micallef said hotels had suffered a sharp drop in profitability last year, despite the positive tourist arrivals.
Although arrivals in 2010 reached a record high, the number of occupied hotel nights was still below the 2008 figure, as was the per capita revenue for hotels, while operating costs have since soared, he said.
“MHRA remains very concerned about declining profitability as a result of the hefty increases in its operating costs and increasing pressures on prices. Eurostat figures show that, even before the recession, profitability for hotels and restaurants in Malta was the lowest among competing Mediterranean destinations,” Mr Micallef said.
The agreement was reached following intense negotiations attended by the MHRA, Finance Minister Tonio Fenech and the Tourism Parliamentary Secretary Mario de Marco.
The series of meetings began soon after the measure was announced during the Budget speech and was heavily criticised by hoteliers and tourism industry stakeholders.
Mr Micallef said the €1.5 million figure was reached through compromise as the government’s offer was initially less.
He said in spite of MHRA’s objections, the government was adamant on introducing the VAT increase on accommodation to substitute the introduction of a bed tax which was supposed to come into effect last June and intended to be paid directly by all tourists visiting Malta.
This plan had been abandoned “on the advice of the Attorney General whose main concern was that the EU Commission may cite this scheme as discriminatory on the basis of nationality”.
This was replaced by the VAT increase without prior consultation, he said, adding that the government dropped the bombshell during a final presentation of its Budget measures at the Malta Council for Economic and Social Development just two days before the Budget.
He said the sum which had to be forfeited by hotels would probably be higher as the hotel industry was not entirely able to put up the rates by an additional two per cent, especially in the case of tour operator business, which represented close to 60 per cent of the occupied bed nights for the hotel sector.