Finance minister expresses doubt over proposed VAT cut for restaurants

Finance Minister Clyde Caruana has expressed doubt over the Opposition’s promise to reduce VAT for restaurants from 18% to 7%.

Last Sunday, PN Leader Alex Borg made a number of tax-related promises, including the reduction of VAT for restaurants and kiosks. The tax cut has been proposed by the catering lobby for a number of years.

On Friday, MaltaToday approached the finance minister for comment on the PN’s proposal.

Caruana said that the cost of reducing the VAT for catering outlets to 7% would cost the government some €140 million, noting that this was exactly the same price of government’s tax cut in the 2024 budget and just €10 million short of Malta's current expenditure on energy subsidies.

Caruana took issue with the fact that such an expense would only benefit around 3,000 catering establishments, whereas the 2024 tax cut benefitted large swathes of the population. 

The finance minister told MaltaToday that the proposed VAT reduction would not necessarily result in lower prices for consumers, as he referenced a statement by the catering lobby which confirms this.

Earlier on Friday, the Association of Catering Establishments (ACE) expressed its reservations on the impact such a measure will have on the end consumer. In its statement, ACE said, “this is a measure primarily aimed at supporting the catering industry. The end consumer is an indirect beneficiary of such measure.”

Caruana noted that should such a measure be implemented, the extra profits would eventually be eaten by rising costs for catering establishments, as suppliers seek to capitalise on their bigger margins.

The finance minister further noted that such a tax cut would result in an extra €47,000 in profits on average for restaurants. "Meanwhile, this means zero benefits for consumers, and less income for the state."