NEWS | Wednesday, 11 March 2009

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Charlot Zahra
Malta will be able to charge a Value Added Tax (VAT) rate of 0% on food and medicines beyond the end of next year for an indefinite period following “lengthy and difficult discussions on all European Union levels”.
A government statement yesterday afternoon announced that Malta had reached this agreement with the 27 EU Member States attending the Economic and Financial Affairs Council (ECOFIN) meeting as well as with the European Commission.
In the accession negotiations, Malta had obtained a temporary derogation on the levying of VAT on food and medicines which expired at the end of 2010, arguing that as long as the UK and Ireland had an exemption, then Malta should retain its exemption as well.
Commenting on the agreement, Finance, Economy and Investments Minister Tonio Fenech hailed the agreement as “a huge victory for our country, which was obtained following lengthy discussions.”
He said the agreement also included the possibility of charging reduced VAT rates on services for the care of the elderly.
While the VAT Directive expected each Member State to charge a minimum VAT rate of 5% on food and medicinal products, ever since Malta’s accession negotiations, Malta had opposed this provision.
“This is because Malta already faces considerable challenges in this field due to the additional expenses connected to transportation and the small size of the local market,” Fenech added.
Moreover, Malta imported more than 90% of the products consumed locally.
The agreement was reached following negotiations held as from July 2007 and were concluded following a restricted session of the ECOFIN held yesterday.
Due to the fact that taxation is a sector that requires a unanimous decision, Malta needed the agreement of all 27 EU Member States prior to obtaining this permanent derogation.
For instance, Prime Minister Lawrence Gonzi had raised the matter during bilateral discussions with German Chancellor Angela Merkel during a State Visit in Germany held last January.
At present, there were two other EU Member States that had a permanent derogation on food, and three others that had a permanent derogation on medicinals.
If the agreement had not been reached, Malta would have had to apply a VAT rate of 5% on food and medicinals as from 1 January 2011.

czahra@mediatoday.com.mt

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