28 Feb. - 6 March 2001

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Constituted bodies to meet Finance minister next week

fringe benefits controversy continues

By Miriam Dunn

Employers are concerned that they will be forced to bear the brunt of adjustments to the fringe benefits provisions and compensate their workers through salary increases.

Though the rules laid out by the Inland revenueallow for up to Lm500 in untaxable cash allowances for use of a privately owned car and exemptions for health care, telephony, child minding, recreational activities and training courses.

Representatives of various constituted bodies have said any changes should be introduced in a more gradual and subtle manner, while calling for the government to control its expenditure to reduce the deficit rather than channelling all its energies into targeting the taxpayer.

The bodies which last week issued a joint press release in which they voiced concern about the way the new form of taxation was being implemented and enforced - the Chamber of Commerce, the Federation of Industry, the Employers' Association, the Malta Hotels and Restaurants' Association and the Association of General Retailers and Traders – are now set to meet the Finance minister John Dalli next week to discuss the issue.

MEA president Alfred Mallia Milanes told The Business Times that the association was unhappy with the fact that employers would wind up making good shortfalls through salary increases.

"Employers will end up cushioning the blow, to ensure the economy doesn't end up crippled," he said.

Mr Mallia Milanes added that the private sector was very disappointed with the way the whole fringe benefits issue had been handled, saying the amendments received no serious discussion.

Asked whether he accepted that it had been necessary for the government to take the bull by the horns and introduce such measures after years of rampant tax evasion, Mr Mallia Milanes once again advocated a subtler approach.

"We should also remember that these fringe benefits were introduced because Malta always had one of the highest tax brackets, so with this in mind we should tread carefully," he said.

Philip Fenech, GRTU secretary general, also said that the changes would act as a disincentive to the most productive people.

But government sources have reiterated that fringe benefits are mostly used to hide real income.

"Of course we don't back abuse, such as exaggerated cases where people have put items like yachts and expensive cars under the company name," he said. "But we believe these are the exception. There are many other cases where good workers have been given some perks for their hard work and responsibility.”
“That is what the private sector has to do to survive against market forces, after all,” he said.

Anthony Chircop, president of the MHRA supported Mr Mallia Milanes' theory that the changes to fringe benefits provision would be another blow for employers.

"Our main fear is that once employees see a drop in their wages, they look for compensation and this will inevitably have to be made up in salaries," he said.

Mr Chircop also said the MHRA believed that the changes would see the same people hounded that suffered in last year's budget.

"We have a concern that the people who will be penalised are those who also suffered when the tax brackets were changed in last year's budget, and for them to be hit twice in a row is a blow," he said.

He stressed that the MHRA recognised that the government had to take the ultimate decision on an issue.

"But things were not done quite in the spirit that we expected following the meetings held at the Malta Council for Economic Development," he admitted.

Asked whether he accepted that the Finance ministry had to take a firm hand where the abuse of benefits was concerned, the FOI secretary, Edwin Calleja, pointed out that the government hadn't always set the best example.

"There were several high-ranking employees offered packages which included fringe benefits, such as cars which they have taken with them as gratuities, for example," he said.

Mr Calleja stressed that the FOI acknowledged the fact that the problem of the public deficit had to be tackled, but added he believed the issue was one of balance.

"There is a concern that the government is once again increasing the tax band of the middle classes, and this is why we would have preferred to see a more gradual approach used, perhaps by permitting better tax free allowances and putting thresholds at a reasonable level," he said.

Mr Calleja also said that the primary tool for tackling the deficit problem had to be controlling public expenditure rather than targeting the taxpayer.

"I am pleased to say we have seen some signs of this, such as the benchmarking exercises, and we hope these reap rewards," he said. "But we believe the government might need to go one step further and consider freezing certain programmes and benefits, including government salaries. If we don't ensure that these don't exceed inflation level, it is simply a vicious circle."
Following the joint press release issued by the constituted bodies, Finance minister John Dalli said that although he was pleased to note the constituted bodies strong stand on fiscal morality, it was important for them to realise that the changes in the regulations were to even out the situation.

"The constituted bodies make the wrong assumption that the fringe benefits provisions that existed in our tax law since 1948 were discarded universally," a spokesman for the minister said. "This is not the case. It is to the state of affairs where particular provisions are adhered to by some and at the same time are disregarded with apparent impunity by others, that I referred to as the rule of the jungle. As well as to the practice that some employers condoning to decide, in collusion with the employee, which part of a compensation packet is declared to tax and which part is camouflaged."
Mr Dalli shot down the bodies' claim that they were not consulted over the issue of fringe benefits during meetings held at the MCED.

"After the budget and before the implementation details were finished, discussions at all levels were made," he said. "We did engage in dialogue, accepting some of the proposals that were made and rejecting others."
The Finance minister stressed, however, that although the government took on board some of the constituted bodies' suggestions during discussions at the MCED, this had in no way meant that it was abdicating its right to govern.

He also encouraged the organisations to encourage their members to look at other ways of tackling the liquidity problems, which would help "foster proper financial housekeeping".

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt