22 JANUARY 2003

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Tour operator margin scheme should not generate adverse effect – FATTA

By Matthew Vella

Opposition leader Alfred Sant fears EU accession would detract from Malta’s competitive edge in the tourism sector. In comments made last week during Robin Hood, broadcast on Super One TV, the Opposition leader claimed that EU accession "would introduce a new tax on tour operators who send their clients to Malta, effectively increasing their expenses by two to three per cent."

Dr Sant was referring to the tour operators’ margin scheme (TOMS), a heavily beleaguered taxation system that has recently undergone an amendment process.

According to a directive recently approved by the EU Council of Ministers, EU operators supplying packages to tourists from outside the EU will now be exempted from accounting for VAT on their profit margin. If the packages are for destinations outside the European Union, as in the case of Malta, tour operators are absolved from having to account for VAT.

Dr Sant believes that if Malta becomes an EU member, the effect on EU operators, who will no longer be exempt from VAT, would ultimately chip away from the island’s competitiveness as a destination.

Speaking to The Malta Financial and Business Times, Federation of Associations of Travel and Tourism Agents Vice-President Ian Tonna said that in the eventuality of EU membership, the directive would generate a neutral effect on the tourism sector.

"The main objective of TOMS was to minimise paperwork due to the eventuality of double taxation between EU member states. If Malta becomes an EU member, foreign operators will no longer be exempt from VAT levied on their profit margin.

"On one hand this may generate increased expenses. However, we have to take into consideration the fact that, since November, Malta now enjoys a cheaper departure tax from the UK as an EU applicant. It is my personal opinion that somehow the reason why the UK operated a double-tier system on departure tax was to recover what would have been otherwise lost since Malta was not part of TOMS.

"If Malta joins the EU, tour operators will be able to reclaim VAT on its travel packages. So it is pretty much a give and take situation, which should generate a neutral effect overall."

TOMS was introduced by the EU to stop tour operators reclaiming VAT on any of the component costs of a package, such as accommodation or transport, requiring them to account for VAT on the profit margin.

The new directive has now got tour operators based outside the EU in line with EU operators. The directive aims to end the competitive slant of major tour operators who are based outside the EU and supply packages within the EU to avoid taxation.

Today, non-EU operators have to register and pay VAT if they supply travel services in an EU member state, including those which are electronically-based. This has been a fact which many foreign operators based in Malta have had to reckon with.

One of the aspects which has caused considerable difficulty was ensuring that all EU states are consistent in deciding what transactions must fall within TOMS, and what are excluded.

Problems of double taxation due to the inability of states to agree whether wholesale transactions between operators had to be considered as final sales and therefore VAT-reclaimable, locked VAT in the supply chain in a way completely unintended by TOMS.


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Editor: Saviour Balzan
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