The tale of the Manx VAT
DONALD Gelling, the Treasury minister for the Isle of Man, has secured an agreement from Westminster that a reduced rate of VAT should apply to hotels on the island. A lower rate will be brought in later this year (see page 14).
Like the Channel Islands, the Isle of Man is not a European Union member and not directly bound by its statutes, though unlike the Channel Islands it does collect VAT. The Paymaster General, Sir John Cope, has given permission for the island to depart from UK practice by levying a reduced rate for hotels. The change will require an Act of the Manx Tynwald, but not of Westminster.
The grounds for the agreement are that it will put the Isle of Man's tourism industry on a more even footing with that of the Channel Islands, which is VAT-free. The case for a special Manx VAT for hotels is hedged with qualifications, but the question must be asked: what's so special about the Manx tourism industry?
The hoteliers of the Isle of Man may see the Channel Islands as their direct competitors, and good luck to them if they actually get their reduced VAT rate as promised. But Guernsey and Jersey have other, closer competitors, whose customers also pay VAT at 17.5%.
Are the hoteliers of Brighton and Bournemouth to get special deals, too? Shall we see the burghers of Torbay voting to leave the European Union for the sake of less penal taxation? Obviously not, but when British Hospitality Association chief executive Robin Lees met Sir John on Monday to talk about VAT, no doubt he pressed the case for a fair deal for hoteliers in the rest of Britain.
There is a strong case for a fairer deal. More than half the member states of the European Union charge hotels less than 10% VAT, compared with Britain's standard rate of 17.5%. And currently Europe's finance ministers and the European Commission are examining which businesses should qualify for reduced rates of VAT.
They aim to harmonise VAT rates throughout Europe by 1997. Whether or not that deadline is met, it would be good if they agreed a consistent approach to tourism. Competition between Britain and other tourism destinations is tough enough. Britain's hoteliers understand they usually have to compete at a disadvantage where the weather is concerned, but surely the VAT man shouldn't make it worse?
