Readers may well lament that simple pleasures in life like dining out are burning holes in their credit cards.
It is unfair for locals to pay a higher VAT rate on food and drink when neighbouring countries are charging lower rates. The trophy goes to Luxembourg as it charges a rate of 3% on food and 17% on alcoholic beverages.
Now that the tourism industry is gearing forward with higher occupancy rates, can we follow Greece's bold experiment in 2013 and drop the VAT rate to 7%.
This article argues that over-charging VAT is like burning the candle from both ends and will cause the catering sector to implode if remedial action is not taken to tackle challenges lurking under the surface. Obviously, during this time of year it would have been ideal had the 2023 Budget proposed a reduction in VAT to reduce the galloping cost of living.
It would give a boost to most restaurants and hotels at New Year celebrations if a lower VAT tax is charged on diners. Can we take note how the Spanish government announced a new package of measures worth some €45bn being the overall amount released to help those struggling with soaring inflation and runaway food and energy prices. Such measures to alleviate the cost of living include axing the value-added tax on basic foodstuffs.
The Spanish government recently announced VAT cuts on certain goods for a trial period of six months. This will take place between 1 January and 30 June. One can argue that Malta has a zero rate on some basic foodstuffs yet in the case of Spain some basic food items were chargeable.
For example, items including bread, milk, eggs, cheese, fruit and vegetables and cereals will be reduced from 4% to 0% and VAT on cooking oil and pasta cut from 10% to 5%. Spanish authorities also unveiled a one-off payment of €200 to "families with incomes lower than €27,000" to offset food prices. The Spanish prime minister said the aim was "to protect the middle and working classes given the rise in the cost of living, energy and food".
Although inflation and energy prices in Spain have fallen sharply in recent months, many Spaniards continue to suffer severely from a crisis that started with the Covid-19 pandemic in 2020 and is now exacerbated by the war.
In setting the lower 10% rate, Spain was varying from the rules on reduced VAT rates contained within the EU VAT Directive. The domestic electricity rate was cut from 10% to 5% as inflation hits 8.7% in May. Prime Minister Pedro Sanchez announced this summer a plan to reduce the VAT rate on domestic electricity to 5%. It was originally cut from the 21% standard rate to 10% in late 2021.
This cut follows a reduction from 21% to 10% on electricity. In case of Malta there is no public knowledge how the €200m blanket capping on electricity tariffs and imports of grains is apportioned between Enemalta and private grain importers.
Spain faced Article 98 of the VAT Directive which establishes that member states may apply either one or two reduced rates. Reduced rates can only be applicable to the supply of goods and services in the categories described in the Annex III of the Directive. Nevertheless, Article 102 of the VAT Directive establishes that, after consultation with the VAT Committee, each member state may apply a reduced rate to the supply of natural gas, electricity or district heating.
Another smart move was to target claimants of the 20 cent discount per litre of fuel, which previously had been available to all consumers; this will now be limited to "the most affected sectors" such as lorry drivers, farmers, shipping companies and fishermen. In Malta there is a feeling that everybody can avail of the capping on fuel prices irrespective of their wealth status.
Again, caping energy costs means wastage is encouraged as the rich are subsidised equally as the sans-culotte. Irrespective of political propaganda, some families in Malta are categorised as low-income status. Many are working three jobs just to survive until the next monthly pay cheque. Scarcity of unskilled workers is being solved by importing more third country nationals.
They man shops and act as waiters in most eateries. Some drive our buses and others are seen scootering in congested streets to deliver snacks for which they are paid a pittance. This is condemnable. The cost of dining out has risen and many remark how families are paying double the VAT on dining compared to the amount charged in Europe.
Still Castille refuses to reduce tax, instead it prefers a band aid approach to camouflage fuel and grains inflation but not reduce taxes. The man in the street who travelled for holidays is conscious that petrol/diesel charged at the pumps are double the rate we pay today.
Therefore there is a feeling among motorists that burning subsidised fuel is like living on borrowed time. Another "elephant in the room" is the ballooning profits generated by unbridled construction .This is pushing up the cost of rents. One hopes that the minister of finance will listen and recalibrate his fiscal arsenal to ensure the trickle-down effect of millions harnessed by speculators in construction reaches the lower income bracket.
Consider the scene of easy tax money collected by notaries registering a record tax bonanza due to skyrocketing number of property deals. In addition, the president of the Malta Chamber of Commerce, Marisa Xuereb, has argued that a relatively high COLA increase of €9.90 weekly would lead to more inflation. She stated that the allowance would be more effective if specifically targeted to low-income groups and to those employees who have not received wage raises during this inflationary environment.
Therefore, a COLA for next year may have undesirable effects on the labour market with a possibility of higher unemployment rates as employers with collective agreements face fixed annual increases in addition to a €515 COLA annual increase.
Ideally, a New Year resolution will be to encourage MCESD to discuss ways how to take remedial action perhaps using the strategy used by Spain in its fight to lower the cost of living and wrestle inflation.
A prosperous New Year to all readers...