Interview | Wednesday, 01 April 2009

To VAT or not to VAT

Wine consultant, writer and lecturer Michael Tabone shares with DAVID DARMANIN his views on the recent news allowing Malta the flexibility to adopt a reduced VAT rate at restaurants

Has the top-rate VAT applicable to restaurants made Malta a less competitive tourism destination?
Of course a reduction on VAT applicable to restaurants will make Malta more competitive, especially if other EU countries have already reduced theirs. However we must not forget that most restaurants depend on local customers. Maybe it’s about time that we start looking at our catering industry from this angle. If we want to make Malta’s tourism industry more competitive we should look at the product itself and have a coherent vision or plan as highlighted by consecutive governments and tourism leaders. Most recently by MHRA President Kevin DeCesare. It is also important to mention that European Governments have used reduced VAT rates to promote other activities too. For example, France has applied 5.5 per cent VAT on renovation of old buildings for some time. This was meant to encourage restoration rather than new construction.

Reduced rate is already applied at hotel restaurants. What are your views on this?
All well and good. If this reduction is extended to all restaurants even better.

Do you think reduced rate should be applied for both beverages and food now that the Maltese government has been given the flexibility of adopting reduced rate at independent restaurants?
On average, beverages, especially alcoholic ones make up about 30 to 40 per cent of a restaurant bill. More when it comes to finer wines. If we want to make a significant reduction in the cost of people eating out, beverages will have to be included. However there are many technical issues that make this proposal very complicated and difficult to implement especially since alcohol has higher VAT or excise rate either on importation or production and as far as I know no one is proposing a reduction at that stage or for that matter at the restaurant stage. Of course, as a wine consumer I would be very happy to pay a reduced VAT rate, however I don’t think that this on the cards. In effect, for people that consume alcohol, the cost of eating out will not go down by much!.

Don’t you think that if this happens - government would be indirectly promoting the sale of alcoholic beverages, and that it would be justifiable for drug prevention organisations to oppose such a move?
The emphasis should be to consume alcohol sensibly and in moderation. Especially in the case of wine, this beverage is an integral part of gastronomic experiences. Wine helps digestion and enhances different tastes and textures. However, as I said earlier it’s a complicated subject. You cannot have a restaurant selling a bottle of wine with 5 per cent VAT and across the road a retail outlet selling the same bottle at 18 per cent VAT.

Government seems to have ruled out introducing the cut in VAT before the 2010 budget. Do you agree? Why?
Reducing VAT on restaurants should encourage people to eat out more. In the present financial crisis this will bring increased economic activity and feel good factor. Therefore why wait?

Restaurant prices in Malta have often been an issue when it comes to price-competitiveness comparisons with other destinations. Why?
Prices in Malta are not cheap. But don’t think that restaurants in general are money spinning businesses. There are many considerations to take into account. High rents, high hidden costs (permits, licences etc), expensive raw materials, inconsistent frequency of customers, untrained and inefficient staff and seasonality to mention a few. In my opinion one of the main problems is the fact that we have too many eating places. Many are simply not good but continue operating. If the general public becomes more discerning, there will be an increased interest in the good restaurants which should encourage them to further improve their product. I believe where we suffer most is in value. We simply have too many restaurants who do not offer value for money. Especially in comparison to the cheaper, excellent eating places you find in most European cities.

With ingredients being zero-rated and restaurant dishes having a VAT rate of 18 per cent applied, the cost difference between a home-cooked meal and a restaurant meal is stark. Do you think a reduction in VAT will see more local punters eating at restaurants, if the price difference is diminished?
As elsewhere in Europe there is a trend to organise dinner parties at home. The smoking ban, parking difficulties, better choice of wine and restaurant prices are just some of the reasons why this is happening. A reduction in VAT will make a difference but I think that restaurants need to fight back with more quality, service, choice and pleasure value.

Do you think this move will leave more money in restaurant owners’ hands to invest in human resources? If so, do you envisage an increased quality offer at restaurants? How would this move affect our product?
VAT is not a cost to restaurateurs. It is neither meant to be a revenue. In theory VAT is a tax paid by the restaurant going public, collected by the industry and passed on to Government. If Vat is reduced, the full benefits should go towards the consumer. I don’t believe that VAT has any thing to do with increased quality. This is a much more fundamental and ideological issue that needs to be addressed from a cultural, educational, media, political and professional aspect. In my opinion it will take a generation to sort out.



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01 April 2009

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