The Malta Independent 16 May 2022, Monday

Tax avoidance and human resources abuse are a threat to the local restaurant industry

Rebecca Iversen Sunday, 23 July 2017, 11:15 Last update: about 6 years ago

Speaking to The Malta Independent on Sunday, restaurateur Julian Sammut had stark words of warning that illicit practices being undertaken by some in the industry could have adverse effects not only on the catering industry itself but also on the country’s tourism sector.

“We fear that the growing trend of VAT and tax avoidance twinned with irregular employment methods will, if not checked efficiently and effectively, have negative effects on the local tourism sector. Quality will suffer and much of the goodwill and progress gained over the last years will be lost.”

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Sammut, managing director of Kitchen Concepts Ltd, a local restaurant company operating 10 outlets and employing around 400 employees, summed up his concerns on the predicament of the industry he has been involved in for more than 20 years and which he clearly loves very much.

“The age of the restaurateur seems to be coming to an end. By this I mean people who lived their restaurant as one does a vocation – putting customer care and satisfaction, pride and passion before financial gain – are becoming rarer in our business.

“I don’t mean that there are no longer people with passion for this work; there is a multitude of young, capable chefs around, only it is far more difficult to run a restaurant well and profitably.

“Sentiments apart, I have often been called a romantic softie, I often suspect that many have interpreted the government’s business friendly message as meaning that they can conduct their business just the way they like.”

Sammut places the cause behind such abuse to the continually growing competition, the increasing rents – more often than not, the landlord is earning far more than the operator – and the severe lack of staff at every level, apart from the personal greed of many individuals.

Operators, he says, are often faced with a Hobson’s choice of either abusing the system, in an effort to lower costs, or lose money and face failure.

“We know that we, and other fiscally compliant companies who play by the rules, know of cases, first hand, where restaurants with turnovers similar to ours declare half their sales, meaning that they pay half the VAT due and as a consequence of declaring lower sales they declare a minimal profit, paying far less tax than they should.

“I reckon that this practise is widespread. For some outlets, this is a planned, well-administered system, for others it is a matter of survival. Not playing on a level field is most frustrating and demotivates bona fide restaurateurs.”

As in all sectors, he says, finding competent employees has become a nightmare, probably more so in the catering industry where hours are longer and very unsocial.

“Staffing an operation sufficiently is a constant struggle; there are simply not enough people around. It is very much a lose-lose situation for operators at present. If foreigners are employed to fill the gaps, patrons complain that they cannot communicate properly. When students are taken on, on a part-time basis they are often unreliable and let their employer down. The number of students graduating from the ITS seems to be declining and many don’t last long in the industry having joined the Institute in the first place because they had nothing better to do. Maltese personnel especially outside the kitchen are a dying breed.”

According to Sammut, they are wooed into more “comfortable” jobs in retail or with betting companies for instance; more so when they are in a relationship and their partners complain about them working nights, and Saturdays and Sundays.

“This already difficult situation is further compounded by wages being paid under the counter, black money. In recent months, it seems as though this monster is raising its head once more. I’d say that at least half the people we interview expect to have a good part of their wage paid under the table, something that we at Kitchen Concepts cannot do even if we wanted to because for them to receive the net equivalent would mean having to up their gross salary by 20, 30 and even 40 per cent. For an operator who is taking in black money by cheating on VAT payments, it is a great way to launder, and get rid of, that money.

“Most of these people don’t stop to think that what they are doing, i.e. evading taxes; it is illegal and they can get into trouble with the law. This applies to workers too of course, apart from the fact that they lose out on social benefits. We have come to realise that some join us for a few months during which time they apply for a house loan for which they must present evidence of their monthly salary. Once the loan goes through, they go off for a more lucrative post for which they are partly paid in black money.”

While very happy with the level of business from all sectors, not solely from tourism but also the thousands of high salaried ex-pats working in Malta and the Maltese themselves who are eating out more often, Sammut’s worry is that the industry is suffering under the strain of the increase.

The lack of sufficient staff leads to malpractice on the part of many operators and a veritable auction comes into play with black money playing a big part in the bidding.

“You could have a full kitchen with six chefs going one week and then just two or three the next and you still have to feed a few hundred people a day. Chefs are asked to work longer hours, stress and fatigue set in, working conditions deteriorate and all of this negatively affects the overall quality of the food and service.

“Then as one strives to get a full team back together, a second and third restaurant are affected as a result of your recruitment, it’s a vicious circle. Inevitably, customers suffer for this, unjustly, then the bloggers get underway, often rightly so, and the operator takes a further beating.”  

The government’s decision to allow extra communitarians into Malta to work has helped ease the situation but it is not enough as most other neighbouring economies are having problems finding staff in the hospitality sector.

Kitchen Concepts personnel embark on an annual recruitment drive in neighbouring Sicily each year and are now looking further afield. Asked what solutions there are to steady the business in the long term, reducing VAT from its present 18 per cent down to 10 per cent or eight per cent could be one according to Sammut.

“I believe that where tax rates have been reduced abuse decreases considerably as many realise that it’s better and safer to pay their dues. The government rakes in the same amount in revenue or more, and the consumer benefits from a lower price too.

“With less VAT evasion less undeclared wages will follow, which in turn means more tax and social security revenue for the Minister of Finance. I am no financial guru, but when considering that the value added tax in France has been reduced from 19.9 per cent to 5.5 per cent; that in Italy it stands at 10 per cent and in Luxembourg it is as low as three per cent, then I guess that lowering the percentage can work for all.”

Referring to the recent news that tax inspectors have been carrying out investigations on ‘fixed’ cash registers, Sammut says it is certainly good news and feels that stronger enforcement is urgently required all around.

“This is welcome news; there are millions of euros being stolen from the taxpayer each year as a result of VAT evasion. These could be put to good use elsewhere, I’m sure.

“I have great confidence in the people who work in the hospitality business in Malta. They go far and beyond their call of duty and despite the difficulties mentioned above, there is still much talent around. Malta’s restaurant offering is cosmopolitan, diverse and very interesting with great promise, yet if the bad apples are not reined in we all risk losing out.”

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