The End of the VAT exemption for goods up to €22 – No Transitional Period
22 June 2021
As from 1st July 2021, the European Union will introduce new VAT e-commerce rules to...
An ecological tax (or
eco-tax) is a regulatory instrument that increases the cost to actors of an
activity in a way related to the cost of the extra environmental damage caused
by that activity. It is therefore meant to divert consumption patterns away from
goods that are deemed 'bad' for the environment.
However, in case of
certain items consumers cannot substitute environmentally damaging products
simply because no alternative exists. Moreover, if these goods exhibit price
insensitive demand, then it is bound to have a distributional regressive impact.
For example, newly-wed couples cannot refrain from buying certain appliances
such as refrigerators, TV and telecommunications equipment, washing machines and
cookers. These measures will have income effects on various households with
significant equity considerations.
There are various tax considerations
that should be assessed. As they are proposed in the Bill, eco-taxes will be
charged at a fixed rate and not as a proportion of the selling price. This means
that should competition bring down the selling price of an eco-taxed item, then
that product will still carry the same fixed charge above the underlying price.
As a result, the proportion of the new eco-tax over the total selling price will
be relatively higher. Consumers may prefer substituting to higher priced items
knowing that they will pay relatively lower tax as part of their total
Eco-taxes will be imposed on items which are already VAT-able.
Therefore, it is a new layer of taxation over and above the current system. Even
so, some imported items may carry an eco-tax from the originating countries, in
which case products will be taxed twice. Increasing rates of taxation on some
goods may affect negatively the cost structures of companies that compete in
international markets. Inflationary pressures will further affect the price
competitiveness of our economy.
Finally, one has to see who will shoulder
the burden of this new tax. As it is being proposed in the Bill, the liability
for the payment of the eco-contribution shall lie with the producer (the term
'producer' refers to both manufacturer and importer of the eco-taxed product).
The eco-contribution shall be payable on a quarterly basis in arrears on
submission of the return relative to the preceding quarter. It is easy to
conclude that producers shall pass this burden to consumers, yet if demand for
the product falls, producers still have to pay the amount due on their remaining
stocks. Such measures will clearly put further pressures on tightening profit
Compliance costs will be an additional burden that the producer
will have to shoulder. The registration and reporting procedures that has to be
adhered to by all producers will steal more time from productive activities.
SME's are already laden with a myriad of responsibilities, filling forms and
other procedures to comply with VAT, SSC, employment and other regulations.
Failure to comply may result in criminal proceedings!
To manage the new
eco-contribution system the government has to pump more money in another
competent authority to carry out the functions laid down in the proposed Act.
There are costs involved in creating new monitoring regimes or legal
Ecological taxes can provide a platform for initiating a
broader reform of the tax system and create political support for changes to
labour and capital taxation that otherwise would not be possible. Ecological
taxes are often seen as socially favourable and morally difficult to oppose and
could be used as a lever to remove economic distortion in the existing tax
system or to raise taxes on currently relatively under-taxed
General tax cuts or even changes to the tax system may not be
acceptable but in the context of ecological tax reform they may be possible.
This is what a number of EU countries have done. A serious plan to implement an
eco-tax reform is not evident locally but the government is simply interested in
finding another source of revenue, let alone popular appeals of being
It is also clear that the Maltese government did
not take heed of agreed lines of action found in the European Charter for Small
Enterprises. The Charter encourages governments to screen new regulations to
assess their impact on small enterprises. No business impact assessment has been
produced on this new taxation system that will affect importers, traders,
consumers and local manufacturers.
No discussion whatsoever has taken
place with the GRTU as a representative of those who will ultimately have to
carry most of the compliance burden. Thus, it is clear that although the Maltese
government boasts of being a strong supporter of this Charter it is putting
aside both preliminary studies as well as healthy consultation. It is promoting
instead a confrontational approach while rushing with quick decisions to make
good for past irresponsible policies. This goes completely against the spirit of
social dialogue the GRTU is used to at European level.
For such reasons,
the GRTU is pressing Government to consider again such actions and not hurry
with its decisions. The proposed Eco-Contribution Act has supply-side
implications on national competitiveness, besides equity considerations. It is
not to be construed that the GRTU is against environment-friendly policies but
rather that a serious plan should be put in place to achieve a win-win
The Bill as proposed is an affront to the businesses affected.
Businessmen are expected to pay tax on all the stock they now have and to sell
at a higher price from August onwards. The traders who have fared badly recently
as total demand slumped, will be worst hit as they have the highest level of
stocks. From then onwards they will have to take note of all they import as all
listed goods are taxable as soon as they leave customs.
No one has any
clear idea how the whole thing is going to work as nobody bothered to work out
The GRTU has given notice to Government to inform traders by
Tuesday what procedures will be applied if it is seriously determined to impose
this tax as from next month. If Government cannot decide by Tuesday then the
GRTU is demanding that the effective date be postponed.
The GRTU is
convening effected traders on Tuesday. They will decide on how to face the
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