Author: George Mangion
Published on Malta Independent 26th May 2020
The predicament currently facing restaurant owners is a real one as they miss a champion to represent them in their quest to recoup losses faced during the three-month lockdown since the imposition of the COVID-19 health directives. This week, an ebullient prime minister announced an easing of regulations to allow restaurants to open under certain conditions. The Malta Tourism Authority promptly reported to the press that it had received some 860 calls mostly from those within the hospitality sector since the lifting of measures was announced.
Restaurateurs called to ask about various aspects of the protocols and what they need to do to become fully compliant in the shortest possible timeframe. The Chamber of Commerce insisted that businesses should be given a clear and safe direction on the way forward in a “responsible and structured manner”. In its own words, the Chamber remarked that: “At the same time the country ought to continue to give due weight to the nation’s economic needs as well as the physical and mental health of our people.” In plain words the conditions imposed for restaurants and cafeterias to open, varies for indoor and outside catering.
For indoor dining, there has to be a reduction in covers such that the maximum number of diners will be one for every four square metre with a minimum distance between seatings of two metres. This condition will reduce risks regarding transmission of infection but of course reduces the number of covers by half. Tables have to be limited to groups of not more than six diners from the same household. Other conditions include disinfection of tables and chairs after each use with menu and wine lists replaced with single-use sheets. For outdoor dining, which is the preferred option, again, same conditions for distance and family groups apply and no smoking is allowed.
As can be expected, the MTA said that it had received some 860 calls (one wonders if they tape all calls to be so confident on numbers) mostly from those within the hospitality sector since the lifting of measures was announced. No doubt, restaurateurs typically queried details of the protocols and what they need to do to comply with inspections by MTA, which started mid-week to certify the 157 eateries that accepted the conditions to start operations (but restaurants can still open in the meantime).
Certainly, state TV was lauding this as a triumph for common sense, hoping that the chance to recoup part of the income forfeited for the past two months will encourage more restaurant owners to accept to restart operations. MTA hoped this will encourage the rest of the 2,000 restaurants and cafeterias to join in the scheme. One would have to wait to see how profitable the new scheme is, given that most probably, due to reduced covers, the operational costs will be higher, while most expect the spending power of some diners to be subdued. Certainly, the heavily reduced number of patrons (especially as there are no tourists) may render the operation non-viable unless menu prices reflect a hefty markup.
One may argue that having a soft opening is better than total closure of the business since chefs and the support staff can at least become active. No study has been announced by the authorities to guide restaurant owners whether it pays to accept the conditions for a partial opening and guide them on the cost of health insurance against the incidence of risks of infection from catering staff or diners. On a positive note, Malta Enterprise stated that, in a spirit of support for the hospitality sector, it will continue to pay the “minimum wage” supplement for next month. This is welcome news, but as far as the viability of the industry is concerned it is a stop-gap solution and unless seat availability improves, then it is certainly a critical time for restaurant owners. Perhaps, this goes to prove why only about 9% accepted the offer to open.
A major issue is the cost of food, which has gone up since the outbreak of COVID-19. Quoting Eurostat, Malta last month experienced the highest monthly increase in inflation across the EU. Inflation went up by 2.9% in April when compared to March. By comparison, this sweetener occurred when last month quarry owners halted the construction industry as they refused to accept more construction waste in their sites unless the industry agrees to pay them double the rates per ton.
Within two days, an agreement was reached between the parties on condition that government lowered the VAT chargeable to 5% while quarry owners reduced their rates to an acceptable level. Can a similar solution be applied in the case of VAT chargeable on diners? A fair solution is to achieve parity in VAT rates by reducing them to match those charged in other Mediterranean countries. This article explains how taxation of catering establishments (whether it is fast food or silver service) can be improved by lowering VAT to 7%.
One hopes it will result in cheaper meals. This will match the lower rates charged by our competitors in the Med. It is no secret to note Luxembourg charges only 3% on food. Another novelty is Greece. At the peak of the Greek financial crisis, in September 2011, the VAT rate for non-alcoholic restaurant sales increased from 13% to 23%. Yet following pressure from the sector, government was persuaded to reduce it to 13% in August 2013 for a two-year experimental basis during which it transpired that more taxes were collected. Catering in all-inclusive hotels in Malta is charged at a composite VAT rate of 7%.
In the context, it is interesting to recall how three years ago, The Malta Independent on Sunday interviewed Julian Sammut about the future of the industry. He is managing a number of outlets at Kitchen Concepts Ltd, part of the giant food wholesaler and import firm Alf. Mizzi & Sons. In his candid interview, he did not mince words and elaborated on the problems then besetting the eateries. The root of the problem lies in tax evasion, both on VAT, payroll and corporate taxes while lamenting that kitchen and waiting staff from non-EU countries are engaged for long hours at low rates. Chefs, who are the fulcrum around which quality turns, demand high salaries, sometimes only partly declared. In a nutshell, restaurants located in prime sites are facing increasing rents, now linked to a drastic reduction in the seating capacity, as stated earlier and increased food costs.
These combined factors push owners to either hike up menus or conversely be tax compliant and barely cover overheads (but retain staff). Some face failure. The spectre of rising rents and licenses makes one doubt if the landlord is earning more than the catering operator, who risks so much time and energy to meet all the health and safety requirements. Now due to the COVID-19 regulations, they are facing reduced revenue but no reduction in fixed overheads. A reduction in VAT on catering will encourage more patronage during these difficult times and if the experiment works, it will save government future monthly wage supplements.
Author: George Mangion
Published on Malta Independent 26th May 2020
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