Labour will revise VAT rates on educational supplies and services such as books and school uniforms, its deputy leader Charles Mangion told MaltaToday. But the party faces a clash with the European Commission, which says the proposal is not possible.
Mangion said a future Labour government will revise VAT on education on the basis of the EU directive regulating VAT, but a spokesperson for the Commission’s representation in Malta told MaltaToday that according to EU law, “Malta cannot exempt or impose lower rates than the normal 18% VAT rate applied in Malta to school uniforms, shoes and carrying bags for students and other goods related to education.”
The Commission also said Malta is also abiding to the EU directive by imposing a 5% VAT on books.
Despite Prime Minister Lawrence Gonzi’s claim that “there is no VAT on education”, the VAT department’s own website confirms that a full 18% VAT rate is imposed on school uniforms and a reduced 5% on all books irrespective of whether these are used for educational or other purposes.
EU law on VAT only exempts the actual provision of children’s or young people’s education, school or university education, vocational training or retraining from VAT.
But the same directive states that this exemption could also include “the supply of services and of goods closely related to the provision of education” by educational bodies recognised at law.
These services and goods are exempted from the directive as they serve “the public interest.”
“We think that in terms of the above directive we have strong arguments to exempt educational materials from VAT,” the Labour deputy leader and finance shadow minister told MaltaToday.
Mangion said education definitely fits the definition of public interest especially in Malta’s case which suffers from the highest level of early school leavers in the EU.
The Commission’s spokesperson acknowledged that schools and other institutions are allowed to supply VAT-exempt goods connected with, and essential for the supply of educational services. But the interpretation given by the Commission is that “no further VAT is to be charged on the cost-plus VAT incurred by the institution on the goods.”
The Commission added that the “exemption does not apply to private schools which must apply the normal rate (18% in Malta) to their supplies of goods or services,” except books on which a reduced rate of 5% is charged.
According to the VAT department’s website, when a school purchases books or uniforms in order to supply them to its students, it is required by law to include the VAT it incurs on the price of the product, but it cannot charge VAT on the final price of the item it supplies to the customer.
According to the Finance Ministry, the educational services mentioned in the directive do not include the supply of goods such as books, school uniforms, shoes and school bags for students. “Malta has no derogation to exempt from VAT any books, school uniforms, shoes and carrying bags for students and other goods related to education. Therefore with regard to these goods, Malta has to impose VAT at the standard rate of 18%, with the exception of books and other printed matter on which a reduced rate of 5% can be imposed.”
Malta benefits from a pre-accession derogation exempting food and medicines from VAT. No such derogation was negotiated on books or children’s wear.