Shop owners and the future of the catering sector | PKF Malta

Why does Malta charge a full rate of 18% on restaurant business? A quick review of VAT charged on restaurants in Europe highlight the trends

A quick review of VAT charged on restaurants in southern Europe shows how Greece, in a bid to aid small business, bolster the tourism sector and reduce evasion, reduced its rate on catering outlets in 2013, from 23% to 13% on a trial basis. The experiment worked and yielded good results for a two-year period with higher VAT declarations.  Due to austerity measures the rate was reverted to 23% in 2015.  

Similarly, we find how Spain and Italy charge 10% on restaurants and on the provision of meals and beverages to be consumed immediately, even if they are made after the recipient’s order, while the Netherlands charges 6% on restaurants (excluding alcoholic beverages), take away food, bars, cafes and night clubs. 

The trophy goes to Luxembourg as it charges the lowest rate of 3% on food and 17% on alcoholic beverages. Needless to say it is a jaw-dropping experience when we ask why Malta charges a full rate of 18% on restaurant business albeit 7% on hotel accommodation including combined all-inclusive food and drink packages. 

Now that the tourism industry is firing on all cylinders and the economy is reporting a small surplus can we follow Greece’s bold experiment and drop the rate on restaurants to 13%, say on a two-year trial period.  

Some commentators disagree saying that any marginal drop in the menu list will not positively affect the industry especially now that arrivals of tourists are on an upward trajectory. They argue that if any reform is necessary to arrest under declaration of VAT, the better solution is to cap the total VAT payable according to the type of restaurant - be it high class, medium and fast food category. This may be another variant of the way the catering industry is assisted to regenerate itself and improve the national product. It may start affording to pay better salaries.  

Moving on to the retail sector one can also meet with a number of complaints from village shop owners. These toil for long hours and face cost-cutting deals negotiated by mega stores which kill their unique advantage that they open all hours and provide a personal service to the community. 

“Open all hours” reminds us of a popular TV series written for the BBC and involving a certain Arkwright, a hardworking British shop owner lovingly played by the late Ronnie Barker in a comedy - a unique anthropological series.  This projects a true picture of the sacrifices retailers endure to survive in a competitive market to tackle the challenges associated with keeping up with unbridled bureaucracy and the onset of digital commerce.  

It is with a deep sense of deja vu that one recalls the sound bites by Dr Adrian Delia, the leader of the Opposition.  Proudly he proclaimed that once elected his government will create a business clinic - a one-stop-shop - to help self-employed persons who in his opinion, currently face untold difficulties to make ends meet. He also promised to create an ‘Access Point’ for self-employed persons for the party administration to give them free advice on how to get easy access to soft loans, be tax compliant, and other useful technical tips. Delia also proposed a novel idea consisting of building a ‘Data Bank’.  

Government may again rise to the occasion and magnanimously offer a helping hand

Another innovative idea by Delia is to open the various PN clubs in towns and villages to serve as offices so that self-employed can find free advice from mentors – a boon to help run their business. The penny dropped when the Opposition led by Simon Busuttil fashioned a number of pre-election proposals aimed to encourage growth of start-ups in a policy paper offering to reduce the income tax rate paid by small businesses (presumably only retailers excluding catering outlets) to 10% on the first €50,000 of operating profits. In hindsight, one remembers how the concept of helping a wide spectrum of SME’s was the hobby horse of Dr Jason Azzopardi (the ex-minister in the PN administration responsible for piloting the Small Business Act – SBA) who wholeheartedly pledged full support to protect the interests of start-ups against unfair competition particularly when bidding for Government tenders. 

The SBA mirrors EU directives which is based on the Competitiveness Council policy on ‘Think Small First principle’. Historically it formed part of the ubiquitous Small Business Act for Europe’ (SBA) endorsed by the European Council in 2008.  Sadly, it now rests silently in a library of dead letter legislations, gathering dust on some nondescript shelf in a colonial building aka the Main Guard - facing the palace in St George’s Square, Valletta.  Theoretically it targets the business category employing less than 250, i.e. the overwhelming majority of enterprises in Malta.  No prize for guessing that it makes good economic sense to cater for SME’s rather than accommodate the bigger fish in the pond. Really and truly it seems that government departments do not always co-ordinate their powers and share their rich trove of data to help ease the strain on SME’s when these apply for procurement services (such as tenders and expressions of interest). 

The inimitability of the SBA is that it proposed the formation of a college of regulators expected to meet regularly to harmonise laws and help remove overlapping and unnecessary bureaucracy.  Another smart SBA rule asserts that before any public sector entity introduces new burdens it is obliged to carry out a customer satisfaction survey with the aim to measure its impact. It goes without saying that such surveys, if and when conducted, may not always be implemented. This is why a toothless SBA has turned out to be a farce more humourous than the BBC TV series - Open All Hours (see picture). 

In conclusion, given that Labour was returned to power and GDP growth has resumed and is showing a decent surplus, one may encourage the finance minister to turn a friendly eye on both the shop owners and the catering sector (the latter with over 2,000 registered units nestling 10,000 breadwinners) to commission a technical study by experts in an effort to remedy the problems mentioned above. 

Government may again rise to the occasion and magnanimously offer a helping hand as it recently did with the salary pact accorded with the union of teachers. 



George Mangion is a senior partner of an audit and consultancy firm, and has over twenty-five years’ experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKF Malta has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the Island.