Restaurant owners want their VAT slashed by more than half, arguing the measure would result in more income for the government and more stable prices on menus.
Catering establishments would pay seven per cent VAT instead of the current 18 per cent, bringing them at par with the rate enjoyed by hotels and accommodation places.
However, they are also asking for their point of sales to be connected real time to the tax department to allow for better monitoring, more effective enforcement and force a higher compliance rate among restaurant owners.
The measure is among a package of pre-budget proposals put forward by the Association of Catering Establishments (ACE).
Association president Michelle Muscat and vice-president Matthew Pace believe the idea is a win-win for everyone.
“With the new rate, restaurant owners would pay more VAT and declare more income, meaning the government will collect just about the same amount of VAT it does now and significantly more income tax,” Pace said.]
The tax department will also be able to keep real-time tabs on cash register activity to curb non-compliance and get its share of VAT instantly, daily, instead of having to wait for the owners to pay it every three months or by means of payment programmes, he said. “It is immediate cash revenue for the government.”
Lowering VAT would, therefore, help restaurants keep menu prices stable for the foreseeable future
He said restaurants need this help as they bear the brunt of inflation and supply chain issues because Maltese restaurants are heavily reliant on food imports. Malta imports 70 per cent of all its food, as opposed to France and Italy, which import just nine per cent of theirs.
“That’s why restaurant prices in Rome, for instance, are sometimes cheaper than in Malta, because other countries have less importation costs, greater economies of scale and lower VAT,” Pace said.
“Lowering VAT would, therefore, help restaurants keep menu prices stable for the foreseeable future.”
ACE published a survey last month showing restaurants are barely making a profit. It revealed restaurateurs only take home around six per cent profit after taxes.
“If they also have to pay rent on their premises, the profit is even slimmer... 3.5 per cent,” Pace said.
Muscat and Pace said their proposals were “received positively” by both the government and the opposition when the association met with them over the past weeks to put forward their ideas.
More than a 10th of all workers in Malta are employed directly in the catering business.
Muscat said the association is not asking for special treatment. Rather, it wants restaurant owners to be placed on a level playing field with their direct competitors in the hospitality industry, as is the case in other European countries.
Twenty-two of 27 EU states levy the same VAT rate for hotels and restaurants, and eight countries in the Mediterranean, which compete with Malta for tourists, have already beat us to it, she said. Even in Portugal, where restaurants are obliged to pay more VAT than hotels, the rate is still lower than in Malta.
“Restaurants in Croatia – a leading tourist destination right now – only pay five per cent VAT,” Pace said. “Maltese restaurants must bear the highest rate in the Mediterranean.”