ACE: VAT cut to 7% ‘primarily aimed at supporting industry’, with consumers only indirect beneficiaries

The Association of Catering Establishments (ACE) has reiterated that a proposed reduction in VAT for restaurants and kiosks to 7 per cent is intended primarily as a support measure for the industry, rather than a direct mechanism to lower consumer prices.

In a statement issued following recent political proposals on the measure, ACE said it has long advocated for a VAT reduction and welcomed the Opposition’s commitment to introduce it within its first 100 days in government. However, the association emphasised that “this is a measure primarily aimed at supporting the catering industry,” adding that “the end consumer is an indirect beneficiary.”

ACE also underlined that discussions on the implementation of such a reform are already ongoing with government authorities. It stressed that any meaningful change would require a coordinated, holistic approach involving fiscal authorities, including the VAT Department and the Ministry for Finance, alongside a broader review of licensing, compliance, and operational structures.

At the same time, the association cautioned against politicising the issue, calling for “constructive discussion between all parties concerned” to safeguard the long-term wellbeing of the sector.

Comments given to MaltaToday from Finance Minister Clyde Caruana have raised concerns about both the cost and impact of such a measure. According to the report, he estimated that reducing VAT for catering outlets to 7 per cent would cost the government around €140 million, comparable to the scale of tax cuts introduced in the 2024 Budget.

He also argued that the measure would disproportionately benefit approximately 3,000 catering establishments, while offering limited direct gains to consumers. Citing the catering lobby’s own position, he noted that a VAT reduction would not necessarily translate into lower prices.

Mr Caruana further warned that any additional margins generated by the tax cut could be offset over time by rising supplier costs, ultimately reducing its intended impact. He was quoted as saying that the measure could result in an average increase of €47,000 in profits per restaurant, while delivering “zero benefits for consumers” and reducing government revenue.

Previous calls for VAT reform in the sector
The proposal to reduce VAT on catering is not new. Last year, the Nationalist Party had already advocated for a reduction from 18 per cent to seven per cent, arguing that the sector requires support to remain sustainable.

Chef patron Sean Gravina, described the current VAT rate as unsustainable given rising costs, inflation, and tightening margins.

Mr Gravina pointed to similar measures across Europe, where several countries have introduced reduced VAT rates for hospitality, arguing that such policies help stabilise prices, improve transparency, and support business sustainability. He also suggested that a lower VAT rate, combined with stronger fiscal compliance, could create a fairer system for both operators and the state.

However, the proposal also sparked debate, with some stakeholders raising concerns about enforcement, pricing behaviour, and market dynamics. Critics questioned whether lower VAT would translate into consumer benefits or instead support weaker operators in an already competitive market.

The issue remains closely tied to broader challenges facing the sector, including cost pressures, compliance, and long-term sustainability.