Tourism- a volatile industry that needs attention.

Source: Mr G M Mangion¸ PKF Malta

As published on Media Today Wednesday 2nd October 2013



During a press conference held in January this year three months before the election that the Malta Hotels and Restaurants Association (MHRA) highlighted its proposals to all political parties. Yes it is an important industry that contributes generously to our GDP growth and more so the sustainability of thousands of well paid jobs but as can be expected it is open to fierce competition to many competing resorts particularly in the southern part of the Mediterranean. Led by its energetic president Tony Zahra who is well known in touristic circles he describes tourism as a major stakeholder but of course a volatile one. MHRA urgently called for efforts to reinvent governing processes¸ which may involve revisiting outdated processes or making them more user-friendly. Naturally ¸the elected government has taken a lead and appointed a Simplification commissioner a prerequisite to instill a “culture of accountability” where there must always be somebody held responsible for actions which are taken¸ ensuring things are done as promised. It goes without saying that the incumbent government faces a stiff uphill climb to reform and introduce new concepts must be tracked through a channel which is sustainable¸ environmentally¸ socially and economically.Certainly this is a tall order but while reforms can be painful the only way to increase our low ranking in global competitiveness levels ( currently 41 st ) to bite the bullet and take the bitter medicine. Obviously the reform of energy promised at the last elections hangs like a Damocles sword on this administration and no effort should be spared to hasten the conversion to gas fired energy generation that it is hoped will reduce tariffs by 25% to industry.

MHRA’s proposals include a plea to government to  help the sector achieve better sustainability particularly by increasing tourist arrivals in the shoulder and winter period. One of the proposals include the reduction of VAT back to the original 5% rate on tourism.

Some may question why is the association asking for help when in the past three years saw record arrivals but in the words of Zahra this is a game that never ends and he expressed concern that increasing costs are leading to serious sustainability issues which may be detrimental in the long term. Taking the bull by the horns MHRA has commissioned PKF to conduct a scientific study to prove that the reduction of vat rate from 7% to 5% has beneficial qualities that goes beyond the forfeiture by government of the incremental vat revenue.To start with let us explain the mechanism of vat and how it works and how it always played a significant role in economic situations.

On the 1st of January 2011¸ a new rate of VAT on accommodation was introduced. This new rate of 7% superseded the previous rate of 5%¸ much to the dismay of hoteliers. The increased VAT rate approximately yielded an additional €5.8 million in revenue¸ which was expected to be allocated for advertising Malta abroad.

PKF has undertaken a study to investigate the relationships between various factors and to measure the economic impact on owners of hotels of reducing the VAT rate back to 5%. Variou