SME Chamber

GRTU proposals for Budget 2005

1: Proprietors capital reserve

Once again GRTU insists on an attractive scheme that helps small
enterprise owners to self finance business expansion, renovation, and new
investments. A Recent survey conducted by GRTU shows that many small
entrepreneurs are eager to expand and re-invest in enterprise that is more
attuned to Malta’s future economic perspectives yet they feel hampered by
existing taxation and limits on access to finance from the financial
institutions. They cannot self-finance their own investment programs as much of
their hard earned income is taken away by the taxation that effects small
enterprise disproportionately

1: Proprietors capital reserve

Once again GRTU insists on an attractive scheme that helps small
enterprise owners to self finance business expansion, renovation, and new
investments. A Recent survey conducted by GRTU shows that many small
entrepreneurs are eager to expand and re-invest in enterprise that is more
attuned to Malta’s future economic perspectives yet they feel hampered by
existing taxation and limits on access to finance from the financial
institutions. They cannot self-finance their own investment programs as much of
their hard earned income is taken away by the taxation that effects small
enterprise disproportionately.

GRTU has for a number of years proposed
the introduction of fiscal incentives to help business owners establish a
Proprietor’s Capital Reserve Fund. GRTU’s proposal is essentially a scheme of
tax deferment program whereby enterprise owners will be given the option to put
aside funds for re-investment and business expansion that enjoy a release from
taxation (income tax and capital gains tax if immobile assets are sold to
finance investments).

Should an enterprise owner not utilise these
accumulated funds within 5 years from deferment of tax due they will have to pay
all tax due and deferred on all amounts not utilised for investments in the
agreed period. The areas of investment acceptable for this scheme will be based
on EU norms applicable to similar tax deferment programs.

Government has
partially accepted this proposal in the past but the schemes effected were too
restrictive and did not achieve any effective result.

2: Reducing the
Maximum Rate of Income Tax

One problem faced by enterprise in Malta today
is that too many people from employment grade – managerial, middle management,
supervisory, skill operatives, professionals and technical – are paying a too
high level of income tax. This has been accentuated by the restructuring of tax
bond that was imposed four years ago which has resulted in a rapid acceleration
of taxation effecting middle and upper income groups.

The effect has been
twofold: in the first instance it is demotivational as people are not interested
to work and take up additional work and secondly it has effected negatively
efforts of small entrepreneurs to expand and work harder. Besides the direct
income effect, the action will also have an important psychological effect on
income earners / consumers.

GRTU is proposing that the 35% tax level
should be reduced to 30% over a period of three years with a first drop of two
percentage points as from budget 2005.

3: EU Funding

The whole
structure and all schemes geared towards the utilisation of EU funding for SME’s
are not working in an effective manner. The bureaucratic structure that is
supposed to keep SME owners aware of available schemes is not working as the
forms of structural dialogue in this area are not functioning (not even the
MCESD committee on EU funding). Governments section program on EU structured
funds has reserved nothing for direct utilisation by private business owners as
the funds have all been used to finance public sector projects. SME owners are
hardly aware of anything available as the EU funding exercise is effectively for
the bureaucratic structures of government and for those closely associated but
far removed from the reach of SME’s.

Government assistance program to
organisations representing small business owners hardly exist and there is a
gross discrimination towards small business owners operating in areas outside
agriculture and fisheries. Business organisations like GRTU representing small
business owners need to be funded and supported by expertise and manpower
seconded from the public sector so that they can effectively act as direct
supporting organisations for SME’s thus replacing the more costly and
traditionally ineffective state owned organisations.
4: ECO Taxation

The way the Eco tax was introduced was haphazard and ill conceived as a
proposal geared towards the involvement of business owners in waste recovery and
recycling. The Eco Contribution Commission can hardly produce any serious
results unless the whole concept of taxation and fiscal incentives to
participants in recovery and recycling schemes is revised.

Utilisation of private facilities

Malta Enterprise continues to suffer
from the shortage of available effective space to support new investments while
the private sector owns available building space and also available factory
production capabilities that is in excess of the demand based on what
entrepreneurs are prepared to pay for factory space availability to house new
business expansions.

Government with the support of MEPA should
implement schemes that encourage the utilisation of privately owned resources to
meet the demand for new factory space in a cost-effective manner and away from
the hassle of state bureaucracy.

6: Red Tape and all that

Too much
talk has been said by all on the question of the excessive bureaucracy that is
hampering business development.

It is now time that government takes
serious action which in practice means that ministries, departments, and state
authorities should lose their autonomy in proposing new red tape under one
excuse or another but normally under the convenient excuse of implementing EU
directives under the Acquis Communautaire. Business owners simply cannot take
any more. 2005 must be the year when bureaucratic red tape starts to be rolled

7: Increase in the Price of Diesel

GRTU is recommending that
in view of the increase in charges, which government says are necessitated by
the situation with world market for petroleum products, which charges would
definitely effect all enterprises particularly those where the cost of diesel as
a ratio of total costs is very high, that part of the increase will be absorbed
by the equivalent reduction in the level of taxation imposed on fuels. Malta has
one of the highest funds and a reduction will have a positive effect on all

Furthermore GRTU is proposing that despite the transition
period obtained by Malta to defer the implementation of the EU Directives that
establishes the ceiling on the prices of fuel charged to certain enterprises
like cargo hauling and construction and non mobile equipment used by enterprise
that this directive is implemented with effect as from 1st January thus giving
an important relief to a large cross section of enterprises.

8: Price of
SME’s all to an extent much higher than domestic users utilise
electricity in the production of goods or services. Government cannot impose
charges that further complicate Malta’s loss of competitiveness. Rather than
imposing charges on electricity use Government should opt for incentives to
reduce consumption and places a surcharge on bunkering and restrict pleasure
boats and ships.

9: Credit rating for Tax Purposes
Taxpayers who pay
regularly and in time should not be penalised when for reasons beyond their
control they fall back on payments. A system of credit rating should be
introduced so that during bad time SME’s can enjoy the credit points gained
during better time,

10: Customs Credit Rating
A similar scheme should
be introduced by the Customs Department Traders who regularly abide by at the
rules and are never in breach of any payments mechanism, should be given the
option of automatic release of cargo and payments made later. Credit points
saved would be lost if any suspect action is done.

11: Recommendations on
VAT & Provisional Tax

GRTU recommends that where a company pays
provisional tax year after year, in the case that in one particular year the
company records a loss and not a profit, the refund period should be shortened.
This way the amount calculated on the previous years results will be given back
to the company immediately just as when the company has to pay the tax

12: Licenses for Cargo Hauliers

GRTU had agreed with
government that the licenses for cargo hauliers would not be increased at the
same rate as proposed under EU Directives. The reasons for this were

1) In the case of Malta, cargo hauliers are also the authorised
agents who for security reasons are allowed to transport cargo in and out of
harbour areas. This is a provision authorised under the Treaty of Rome and
identifies Maltese Cargo Hauliers as agents of the government. This qualifies
cargo hauliers for special treatment.

2) Giving the excessive charges
that import and export of cargo is suffering in the harbours due to monopoly
charges by State owned and privately owned monopoly operators, cargo hauliers
(burdanara) cannot possibly pass on additional charges to local importers and

3) Furthermore additional licence fees cannot be introduced at
a time when the cost of fuel, which is a relatively high ratio item of cost to
transporters, has doubled over a short period of time, which extra cost has been
completely absorbed by cargo hauliers.
GRTU now expects that action is taken
to rectify this situation

13: Taxation of the Self-Employed

spite of the annual demand of GRTU to give the self employed the same option
that workers have to submit separate income tax returns by married couples, the
discrimination against the self employed remains. GRTU proposes that with effect
from base year 2004 the self-employed will also have the option to make separate

14: Taxation on Income of Wives

are a substantial number of married women who work part time in family
businesses while their married men work in employment. The fact that they
participate in the labour market and work in family run establishments, should
be encouraged by giving them the facility of a flat income tax charge as in the
case of part time workers. GRTU believes that this will encourage the
utilisation of more female labour that is currently idle.


GRTU continues to strive for the earliest elimination of the
anomalies effecting the self employed. There are two glaring anomalies that
cannot remain unresolved. The first refers to the discriminatory assessment
forced as on them compared to other social contributors. When the system of a
flat 15% rate as a social contribution was introduced to replace the old
contribution bands, it was agreed that this would be accompanied by the
elimination of at least one of the glaring anomalies effecting the self
employed. Today for the self employed the last 10 years income is taken into
consideration and any year in which the income was less than the prescribed
limit will effect negatively the resulting pensionable income. This is an unjust
system affecting many self-employed and small business

Furthermore once the pensionable income level is established
it is never reviewed. GRTU is proposing that as in the case of employees the
self-employed pensionable income should be reviewed annually according to
equivalent salary sector. As things stand today the self-employed became
relatively poorer as they grow older compared to ex-employees.

Implementation of the late Payment Directive as Incorporated into the Business
Promotion Act
Government is charging interest on tax due but due to still
archaic rules and regulations implemented in public procurement it is in daily
flagrant breach of the above directive that stipulates that public undertakings
have to pay up on time for goods delivered to it under contract or else be
obliged to be penalised by means of at a harsh interest rate on balances due.
This directive is precisely here to protect SME’s from being driven to the wall
by larger companies and public undertakings.
Government owes money by the
millions to amongst others pharmaceutical suppliers and construction companies
and many times is refusing to remunerate them on time, much less pay interest on
balances due. Government is obliged by law to issue contracts taking into
account EU procurement rules and terms of payment.

17: Reform of
the Health System

GRTU has long been taking part in the appropriate for a
discussing this issue namely in MCESD. Indeed a report has been prepared which
underlines the urgency to reform the health system in the phase of an rapidly
ageing population and deprival yearly costs of providing a good health care
service to the population as a whole. GRTU supports whole heatedly the changes
envisioned in the new management structures being proposed for the Health
Department. However the time has come to bite the bullet. No health system in
the European Union can survive without a degree of co payment by users. Malta
cannot be the exception. However, the health system will collapse under its own
financial weight if this issue is not addressed immediately. GRTU by means of
its pharmaceutical section has also been in discussion with the health
Department on the issue of the Pharmacy of your choice scheme which is linked to
the issue of licensing of pharmacies. There is convergence on many issues namely
that any system should be as much as possible cost neutral to government.
However, the proposals of GRTU go as far as to provide for not only the
distribution of free medicines from pharmacies but also to the provision of
certain basic medical monitoring and testing. All this at a small nominal
monthly charge.

As a second step GRTU has also proposed setting up a
public private partnership with the government to streamline its procurement
function using expertise that the pharmacy owners have built up throughout the
years. This will be a large step towards the reduction of waste, enhancing
accountability in health sector and devaluating certain basic services to a
private sector that is an integral part of the national health service but that
is more efficient in providing these services.


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