26 November 2003

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MHRA warned Dalli of increasing reduced VAT rate

- Winston J. Zahra says Malta "needs a serious reality check"

Addressing the Malta Hotels and Restaurants Association AGM yesterday, President Winston J. Zahra said Finance and Economic Affairs Minister John Dalli intended increasing the reduced VAT rate from 5% to 8% on the accommodation sector as from 2005.
"As soon as we were informed of the government’s intentions on this front we commissioned a report which included an economic model on the effects of such an increase," Zahra said. "The bottom line is that we clearly showed, through a strong presentation in Gozo, that the increase in VAT from 5% to 8% would lead to the generation of Lm 4 million in VAT revenues at a cost of Lm 19 million to the economy due to loss of demand. The basis of our report was a study conducted by the University of Nottingham which clearly showed that a 1% increase in price would lead to a 3% drop off in demand."
Zahra thanked all the partners who assisted the association in presenting this report and helping the Minister change his view on the matter: "There is a continued agreement between the MHRA and the Minister of Finance that any changes in taxation on the industry would be given advanced warning of at least 18 months. As it stands today the VAT rate on accommodation will remain at 5% until at least April of 2006."
Zahra was scathing about the burgeoning problems of the tourism industry in Malta:
"We all need a serious reality check on our Island. The truth is that our competitiveness is under threat. This threat has arisen from a combination of price pressures and from a certain complacency at both government and industry levels that the good performance of the past can, on the basis of an outdated approach, be sustained in a changed international environment. We have repeatedly stated what we feel the problems affecting the competitiveness of our Island are. If they are not addressed then our competitiveness will continue to be eroded, more hotels will close down and more jobs will be lost.
"The bottom line is that the centre of the success or otherwise of the tourism industry in future years will be the recovery of the competitiveness that we have lost in recent years. We need a clear vision of where Maltese tourism wants to go. At all levels we need to gain an understanding of the underlying forces that are shaping the industry at present and those that will continue to shape it in future years. We need to establish challenging targets and objectives for the industry as we go forward. We need to enhance our ability to innovate and create products that are different and appealing to the market. We need to enhance our ability to react and respond to unforeseen circumstances. Moreover we need a decision making framework that facilitates the formulation of such a strategy and its implementation through consistent and decisive actions at Government level and across the different sectors of the industry itself."
Zahra said the Maltese product overall had to be brought into line with world class standards. Service had to match it and the marketing strategy, both in design and financial backing, had to be such so as to deliver the necessary impact to feeder markets that will guarantee a heightened degree of exposure and a creation of interest high enough to enable people to decide to visit the islands: "The experience we deliver to them when they ultimately arrive has to be one which will bring them back and enable them to recommend others to visit."
"The MHRA expects the government to support the provision of essential tourism related infrastructure in areas where the potential returns to private sector investors are below market rates. These include the more obvious road networks, general upkeep of the environment and cultural sites to the less obvious tourist attractions which our island needs in order to offer a more varied tourist experience. It is high time that government realises and acknowledges that the main driving force behind the success of Maltese tourism over the past 30 years has been private sector enterprise. It is high time that the government now supports the private sector in the provision of a surrounding environment which is at par to the products developed by industry."
Zahra said the MHRA was also concerned that not enough had been done within this year’s budget to address the ongoing issue of government expenditure and tax evasion. "It is a fact that the budget is made up of both revenue flows and expenditure and while the former has been addressed within this budget so as to improve national revenues, the latter has not been given the desired level of attention.
"We need a mammoth collective effort on this island to curb the plague of over-expenditure, wastage, theft, mismanagement and inefficiency that we all see and grumble about on a daily basis. We also all need to participate in eradicating the widespread evasion that takes place to ensure that the revenues due are paid by everyone in the correct amounts."

Copyright © Newsworks Ltd. Malta.
Editor: Saviour Balzan
The Malta Financial & Business Times, Newsworks Ltd, Vjal ir-Rihan, San Gwann
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