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Network News • 02-09-2021

Recounting a tale of inequality, vanishing workers and tax

Author: George Mangion - Senior Partner PKF Malta
Published on Malta Business Weekly: 2nd September 2021

Media reports that restaurants and cafes are weathering a new storm at the start of the tourist season, as the exodus of foreign workers during the pandemic leaves them understaffed and vulnerable to poaching of trained staff who move to other sectors

Regrettably, government has not cared much for such a human resource at the beginning of the pandemic when faced with the exodus of foreign workers which otherwise had to be factored in hiking up the cost of a wage supplement. Last year, we politely encouraged the foreign cohort (not EU nationals) to return home. Now, the penny has dropped and there is a scarcity of trained restaurant workers, a fact which is pushing wages up.

What can be done for this sector which now faces stiff competition for workers? The obvious solution is to open the doors for quality foreign workers and speed up the mangle of bureaucracy that stifled their work permit applications at Identity Malta. Quoting Times of Malta, it mentions a well known restaurant owner who during the pandemic kept all staff on board with zero income from diners yet he finds that currently there is a tug of war to poach his staff.  Can the real problem be that the sector is not registering sufficient profits and cannot sustain paying higher wages? Surely, apart from dishing out more cash vouchers, an alternative solution is to reduce tax on eating. This is a battle cry, which has been requested by MHRA, ACE, PKF, PN and other associations for the past four years. This article shows how Malta levies the highest VAT rate compared to neighbouring countries. As the tourists trickle in they will be surprised to find such heavy taxation when dining out. A reduction in VAT can put the sector on a level playing field with other Mediterranean countries, rendering the industry more competitive. This extra revenue could be used to provide workers with higher wages and in the short-term improve food quality and diner service. Young people who choose a career in catering complain that being paid €5/6 an hour is too little a reward for hard work and dedication. 

As an industry, given the losses suffered under the pandemic (partially offset by furlough schemes), it cannot afford to increase salaries. Obviously, a reduction of 10% in VAT has to be reflected in lower menu prices and that is perhaps one of the main stumbling blocks as the authorities do not have enough resources to carry out point of sale checks. Theoretically, it should not prove back-breaking for MTA officers to randomly monitor menu prices. As can be expected, the situation is even more dire for business owners in Valletta. This is a harbinger of difficult times ahead given that the opening of the airport in June did not result in an anticipated influx of travellers clogging the flood gates. Can the new incumbent at the tourist ministry consider biting the bullet and help the catering and leisure sector by lowering VAT? This may appear flamboyant to some, but if we dig deep we find that other EU countries have already reduced VAT to 5% (the UK and Germany). For example, 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 but 17% on alcoholic beverages. Needless to say, it is a jaw-dropping experience when we note that Malta charges a full rate of 18% on restaurant business albeit a lower rate of 7% on hotel accommodation who include all-inclusive food and drink packages.

Some commentators may disagree with the idea of reducing taxation. They argue that any marginal drop in the menu price list will not make much of a difference since the current trend is for low-income travellers who prefer to book Airbnb accommodation. Here, food cost is not a primary concern. Others argue that a reform is necessary to arrest rampant under declaration of VAT. The proven maxim is lower the tax and State revenue goes up. Perhaps another variation on the theme is to cap the VAT payable according to the type of restaurant – be it high class, medium and fast food category. It goes without saying that anything to reduce the cost of dining will be a godsend to the sector. This helps checking untrammelled rise of core inflation.

Back on the retail sector, here one can meet with a number of complaints from village shop owners. These toil for long hours and face unfair competition by way of cheaper merchandise negotiated in bulk buying techniques used by mega stores – currently dominating the market. It kills their unique advantage that they open all hours and provide a personal service to the community. On a closing note, the Abela administration has promised there will be no new taxes for the next budget which is highly appreciated by the great unwashed.

George Mangion is a senior partner of an audit and consultancy firm and has over 25 years’ experience in accounting, taxation, financial and consultancy services. His efforts have seen that PKFMalta has been instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the island.

Author: George Mangion - Senior Partner PKF Malta
Published on Malta Business Weekly: 2nd September 2021
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