VAT reduction for restaurants will be partly self-financing, Mario de Marco says

A Nationalist Party proposal to lower VAT to 7% for restaurants will be partly self-financing due to higher income tax receipts from improved profits, Mario de Marco said.

Explaining the proposal in an interview with MaltaToday, the PN’s tourism spokesperson said this measure is being taken on by the PN after consulting with stakeholders.

He said the measure could lead to cheaper prices for consumers but also acknowledged that restaurants might retain the profits to keep the business sustainable.

Either way, he said, the measure would be to an extent, self-financing. While the government would lose out on VAT revenue by lowering the rate, he said this reduction could be offset by increased income tax receipts from those same establishments that would hopefully see higher profits because of the VAT reduction. 

But De Marco pointed out that VAT rates are inconsistent across different types of catering establishments.

While food served in standalone restaurants is charged with the standard VAT rate of 18%, the same meal served in a hotel is subject to a 7% rate. Meanwhile, ready-to-eat food sold in supermarkets is charged at zero per cent. De Marco said this creates an unlevel playing field in the sector. 

De Marco also said this measure would make Malta more competitive when compared to other Mediterranean tourist destinations, where restaurants tend to charge VAT at below the standard rate.

De Marco also recalled the words of Finance Minister Clyde Caruana, who had once claimed that the average restaurant pays only around €4,500 in annual tax. He said this means either most food operations are barely viable or the tax authority’s grip on declared income is still weak. 

Therefore, increased efforts to strengthen tax collection in this sector could also help finance the VAT proposal, De Marco said. 

The PN has long been proposing a VAT cut for restaurants and kiosks, but it was when Opposition Leader Alex Borg mentioned it a couple of weeks ago that people took a renewed interest in the measure. 

The Association of Catering Establishments welcomed the proposal and said that any reform in the sector will need coordination with fiscal authorities and a broader review of licensing, compliance and operational structures.

However, the finance minister was less welcoming of the proposal. He said it would cost the government around €140 million, which was the exact same price of the government’s tax cut in the 2024 budget. Nonetheless, last year, when asked about reducing the VAT for restaurants, Caruana had suggested such a measure would result in a decrease of €80 million.