It was almost six years ago that France introduced a tourist tax with the aim of improving amenities and the infrastructure. Thanks to this new tax, it has been in a better position to finance tourist information services, embellish the urban environment, the improve transport and upgrade local heritage.
City tax is charged on visitors irrespective of where they are accommodated – be it hotels, hostels, furnished accommodation, private property, holiday village or outdoor accommodation such as camping or in an agri-tourism hostel. It may come as a surprise to learn that this tax was increased last year, mainly because of the new phenomenon – Airbnb. Indeed, this new type of accommodation was not previously subject to any tax, and it was in order to eliminate any unfair competition – that mainly affected hotels – that Tourism Minister Laurent Fabius decided to also apply this tax to internet booking.
Consequently, since last October, Airbnb has been collecting the city tax at the rate of €0.83 per person, per night. The tax rate for 5-star hotels has increased by 120 per cent – from €1.50 to €3.30 – and 2-star hotels have suffered a rise of 27 per cent, from €0.78 to € 0.99. Today, the city tax band ranges from €0.2 to €4, to which is levied an additional tax 10 per cent departmental charge.
It could be asked why here in Malta we have only recently decided to introduce a similar ‘tourism eco tax’ when tourism has been growing steadily since the late 1960s. Although the number of tourists to Malta was a record 1.8 million last year, this number is dwarfed in comparison with the 83 million who visit France and it could be argued that because France is a bigger country, enjoying a vast heritage and history, a higher bed tax will not deter visitors, whereas a tiny island such as Malta faces tough competition from other established Mediterranean resorts.
The tourism eco tax will come into force on 20 June in all tourist establishments in Malta and this may probably increase over time. The tax will be 50 cents a day and will be capped at €5 per stay. This has set the cat among the pigeons, with the tourism sector going up in arms against its implementation. Tourism Minister Edward Zammit Lewis said that the tourism eco-contribution had been announced in this year’s budget and the government had done its utmost to make sure that the tax would be paid by tourists, not operators.
Tourists visiting France in 2010 spent €137.6 billion, so the tourism sector is very important in France – as it is in Malta – and tourism operators never stop protesting, saying the bed charge is on the increase. Tourism Minister Fabius is aware of this danger, quoted as saying: “We cannot attract tourists if we make taxes too high”. Moreover, he deemed the French increases reasonable because they are lower than expected and because they are now also levied on non-traditional accommodation booked via the internet.
In the meantime, the Malta Chamber of Commerce, Enterprise and Industry, representing its members in the Tourism Business Section including the Federal Association of Travel and Tourism Agents (FATTA), the Federation of English Language Teaching Organisations (FELTOM), the Malta Association of Hospitality Executives (MAHE) and the Professional Diving School Association (PDSA), said it has taken note of the decision of the First Hall of the Civil Court to refuse their request for a prohibitory injunction against the bringing into force of the eco-contribution on tourist bed nights. In the words of the Chamber: “This request had been made against the way the tax was being introduced which ignored the declared concerns of these organisations and considered only the views of the MHRA.”
The Court refused the request on the grounds that the relevant legislation, which requires a meaningful consultation on issues that affect the business operating environment, did not apply to a Ministry. In fact, the Small Business Act (Cap 512) refers to government departments, government entities and government agencies that are bound by its requirements when it comes to protecting the legitimate interests of the business sector. The Chamber and the Associations maintain that their reservations on the situation remain and are as real as ever. A tourism eco-tax will not only create an administrative nightmare but will also have a negative commercial effect on the industry, especially with those tourists coming over on prepaid packages. It will also have a negative effect on the host family sector, which has been included in this tax, to the detriment of the English Language Teaching sector represented by FELTOM with a community of around 1,000 licensed host families.
The Federation argues that Malta is the only destination that imposes the collection of an eco-contribution or any other administrative burden (such as VAT) on host families. In fact, it says it has been approached by numerous host families saying that this levy could leave them with little alternative but to consider no longer hosting English language students. Naturally, with future increases in the tax anticipated, this could have dramatic impact on Malta’s English language sector.
It is opportune to remark that none of the other stakeholders represented by the Chamber were ever against the principle of a tourism eco-tax but solely against the way it was being introduced by the government without proper consultation. It was argued that the government had ridden rough-shod through the objections and not in line with the true spirit of the Small Business Act (SBA) which exists purely to ensure that all SMEs get a fair deal. All this is easier said than done, while acknowledging the legacy bequeathed by ex-minister Jason Azzopardi when, in 2011, he piloted the SBA, which alas has since become a dodo.
On paper, the SBA proposed that businesses be given the opportunity to communicate their views and discuss their needs with the government through the Enterprise Consultative Council, which will also be directly involved in the consultation process of the application of the SME test. This is wonderful stuff because it ensures that suitable measures are taken to mitigate any identified negative impact, especially on smaller businesses. Dr Azzopardi had introduced in the law the concept of a College of Regulators. This ingenious mechanism had to be established to rigorously streamline any overlapping of laws and regulations that might accumulate over the years and thoroughly vet any remaining laws for possible adverse impact. The College would be able to do this through joint meetings with the Enterprise Consultative Council.
All this begs the question: where are the reports of meetings (if any) held in the past five years by the College? Under the PN administration, it was promised that a transition period between the publication and actual implementation of the SBA legislation be set, and would be backed by concurrent explanations in layman’s terms of the provisions of the law. “Guidelines” had to be made available to explain what was required to ensure compliance, but this happens only in Utopia.
In conclusion, better consultation with all those involved in the tourism industry would have avoided the need for the court injunction taken out by the Chamber of Commerce over the implementation of the tourism eco tax. Ideally, all the stakeholders are united to resolve the challenges faced by this volatile industry.
George M. Mangion is a senior partner of PKF an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services.