Government reason unfounded, says Chamber of Commerce

The government’s reason for introducing VAT on travel agents’ gross profits is unfounded, the Chamber of Commerce said yesterday.
The Chamber said the government’s attempts at justifying this measure by claiming that Malta is obliged to introduce the EU “Sixth Directive” are unfounded.
In a statement yesterday, the Chamber said that despite several meetings with the government, the issue of subjecting VAT on travel agents’ margins as of 1 January 2001 still appears to be far from being resolved.
“This notwithstanding a number of public statements issued both by the Chamber and other organisations representing businesses in tourism over the past three months.”
The issue arose with the publication of LN 271 subjecting the gross profits of travel agents to VAT. This is more than the government’s original intention
of introducing VAT on the travel agents’ mark up on tickets.
The Chamber said that according to the Sixth Directive and LN 271, VAT is applicable to a travel agent when dealing “in his own name”. Unless they organise their own package tours, local travel agents do not deal “in their own name” but simply act as intermediaries between the customer and the principal (airline, hotel, theatre) and therefore should not be subject to VAT.
“The sooner this anomaly is cleared, the better for the people in the sector and the consumer at large,” the Chamber said, adding that “the situation is contributing to a distortion of fair competition in the sector. Commissions for travel agents are capped and any tax on such commission would erode into the travel agent’s margin unless this is passed on to the customer in some other form.”
This is, however, the Chamber of Commerce continued, not possible since prices for services are dictated and published by the airlines and travel agents are not permitted to increase the prices since this would infringe their IATA obligations.
“This therefore results in the VAT system becoming a tax on the turnover of the agencies to the tune of 15 per cent. Such increases are occurring at a time when costs (direct and indirect) continue to escalate and profit margins continue to reach break even points.”
In the light of globalisation and the fact that a vast majority of local economic operators play an intermediary role, the Chamber said it questions the wisdom of taxing travel agents and other operators in a similar intermediary situation.
“In providing a vital service to the local consumer, travel agents must carry the financial burden and economic risk of financing late payments for its principals. Therefore, this measure would serve to punish this important sector unduly with added taxation and compliance costs,” the Chamber said.
Above all, this measure runs counter to government’s policy of stimulating the service industry to consolidate its position as the mainstay of the Maltese economy.