01 February 2006

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Business Today

MHRA disappointed with Ecofin outcome

The ECOFIN Council last week concluded that pending the stance of three Member States - Czech Republic, Poland and Cyprus - the validity of the experiment of reduced VAT for labour intensive services shall be extended until end 2010. The Council invited the Commission to present an independent report to the Council and the European Parliament by end-June 2007 to assess the impact of reduced VAT rates, including restaurant services, on jobs and growth.
In July 2003 the European Commission proposed a revised list of goods and services to which Member States may choose to apply a reduced rate of VAT. The proposal provided for accommodation services to remain eligible and restaurant services to be added to the list. Notwithstanding many discussions since 2003, the proposal on restaurant services was not agreed, the recent discussions between France and Germany dominating the headlines in recent weeks. The European Council last month asked the Economic and Finance Ministers to address the question of VAT at its January 2006 ECOFIN meeting, which it did. One has to recall that the discussions on the future financial programming 2007-2013 took the limelight during the December 2005 European Council. It is also important to recall that during the accession negotiations, four new Member States, Cyprus, Hungary, Poland and Slovenia were granted permission to maintain a reduced rate for restaurant services until end 2007. Thus, for example the rate in Cyprus is 5 per cent and that in Slovenia is 8.5 per cent. The MHRA – via the Malta Business Bureau – is monitoring how this debate will unfold in these countries, in particular in Cyprus in the coming days/weeks.
The MHRA would like to note that a further delay to include restaurant services to benefit from a reduced VAT rate will jeopardize the sector’s short-medium run competitiveness. The Commission had already argued some years ago that a reduced rate applied to restaurant services will be a step towards a more uniform application of reduced rates.
The MHRA will continue to push forward the case to reduce the tax burden on restaurants which are already under pressure due to significant regulatory burdens. We are convinced that a reduced VAT rate will not only reduce the black economy but will contribute to the creation of additional jobs, especially amongst young unemployed and increase in VAT contribution due to higher revenues. A reduction in taxation is a concrete step towards reaching the Lisbon goals. A combination of better regulation and lower tax burden will create jobs and proper development in a sector which is experiencing sluggish growth.
The MHRA urges the Maltese Government and Malta’s five MEPs as well as all political forces and social partners to work in unison to help resolve the VAT saga at a European level. This will not be an easy task but MHRA is committed towards working towards a reduced VAT on restaurant services, directly and via HOTREC, in the years to come.

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