I refer to the article entitled “Malta faces losing reduced VAT rate at year’s end” (TMIS, 18 November).

The report completely misunderstood the whole issue regarding reduced rates of VAT for Malta and reported with prominence the false conclusion that “Malta faces losing reduced rates of VAT at year’s end”.

The article said that “on EU accession, Malta, The Czech Republic, Cyprus, Poland and Slovenia were allowed individual derogations to levy a five per cent tax rate on certain products such as labour intensive services, printed material, restaurant services and care for the elderly until December 2007,” and that “reduced rates in the Czech Republic, Cyprus, Malta, Poland and Slovenia are, however, due to expire at the end of this year, as agreed under their EU accession”.

This statement of facts is wrong and the journalist should have checked his sources properly before publication of his article.

First of all, the application of a reduced rate of five per cent VAT on printed matter does not have an expiry date and was not a derogation allowed under the Treaty of Accession. Such a reduced rate may be applied by all member States under the provisions of Annex III of the VAT Directive. Reduced rates on the list of items featured in Annex III have no expiry date.

It must also be pointed out that Malta has no derogations under the Treaty that allows the application of a reduced rate on restaurant services and on care for the elderly, as your correspondent implies. Therefore, on these two services there is no issue whatsoever of an expiration of a derogation. In addition, the derogation to apply reduced rates on labour intensive services was extended to the new member States only last year for a limited period. This was introduced by the Council on an experimental basis for all member States and such experiment would expire at the end of 2007.

In the accession negotiations, Malta was the only new member State that had acquired a derogation to apply a zero rate on food and pharmaceuticals up to 1 January 2010, (i.e. in two years’ time), unlike the other member States, which obtained derogations that expire at the end of 2007. In addition, Malta submitted a declaration in the Treaty that it had accepted the 1 January 2010 on the premise that the transitional regime of VAT would end on that date.

Therefore, to the contrary of what was reported in said article, the only reduced rate obtained by Malta in the Treaty is the zero rate on food and pharmaceuticals and this would not expire at the end of this year. The reduced rates on labour intensive services, which are due to expire, just form part of an experiment already referred to above.

The draft Directive discussed by the ECOFIN Council on 13 November was presented by the Commission with the aim of extending all derogations of new member States up to the end of 2010. The reason for this is to allow enough time to the Council to engage in a political discussion on the future application of such reduced rates in a uniform way, with the aim of avoiding distortion, because while new member States have derogations that expire, some old member States have similar derogations on a permanent basis. This extension has nothing to do with the reduced rates applied on items listed under Annex III.

Your article may have caused unwarranted alarm among the public at a crucial time when Malta is preparing for the introduction of the euro and with the government working hard to contain inflation.

The article, and especially its title, makes a general sweeping statement with an allegation that Malta would lose its VAT reduced rate, a statement that is completely unfounded.

Emanuel Abela

Director of Information