Update yourself or sink
Tony Abela, Parliamentary Secretary in the Ministry
of Finance and Economic Affairs, addresses the recent Deloitte &
Touche conference Coping with Change Update Yourself or
Sink. In his speech, Abela touches upon the need to improve and
transform for the challenges ahead and identifies what the accountancy
profession requires for Maltas new economic environment
People change because they recognise the need to improve
and transform themselves in order to be able to cope with the challenges
the future will certainly bring with it. Recognising the challenges
that lay ahead is an essential prerequisite to trigger off any change
process. However, one needs also the courage to embark on the needed
changes. Such courage stems from the realisation that postponing the
change process will only result in more painful adjustments in the future
when the once distant challenges ahead become the reality
of the present. Unfortunately, there are some in Malta who often chose
to ignore the challenges ahead and instead use the fear of change
in order to reap political advantage.
Without dwelling much on the accountancy profession itself however I
must point out that the position of the accountant has changed radically.
With Maltas entry into the EU, it logically follows that clients
shall require further help and assistance more than the basics which
were meted out up to some months ago. This new economic environment
1. That each and every accountant has in his stride to decide whether
he is to limit the exercise of his profession to what he has done today
and be eventy lost by the wayside or else organise himself together
with others in order to meet the new challanges ahead.
2. That each and every accountancy firm, in view of the recent legal
changes, can now incorporte within its ranks, those persons which it
deems necessary [ having a university degree or its equivalent] as partners
[but with less than a 50% stake] awhom it deems to be necessary as to
provide its clients with a greater overall service than it has made
3. Each firm has to improve and widen its work base without losing its
primary mission statment.
We witnessed this behaviour on various occasions; namely with the introduction
of VAT and EU membership. The latest instance is the Governments
Budget for 2004. The budget that was presented last Monday by the Minister
of Finance takes courageous steps in order to achieve a sound long-term
public finance position. Measures were also taken with a view of maintaining
an adequate safety net for the neediest in our economic system.
The 2004 Budget announced the allocation of Lm12 million to the agricultural
sector. Lm40 million will be invested in the development of factory
space over the next four years and a further Lm10 million will be invested
in embellishment projects to increase Maltas attractiveness for
the local population and tourists alike.
We have committed ourselves to help small businesses gain further access
to finance and have drawn up a research and development programme to
create and develop Maltas capacity for research and innovation.
During the budget speech Government has also announced measures to combat
tax evasion. We have introduced more rigorous controls on the distribution
of medicines and committed ourselves to rationalise social services
in order to increase efficiency in their use and reduce, if not eliminate,
Perhaps the increase of the standard VAT rate from 15% to 18% is the
most hotly debated issue at this time. This was an important decision
to take. We have taken this step in order to safeguard the long-term
sustainability of our health care system. In order not to hamper local
consumption and safeguard the local standard of living we will also
be compensating adequately all workers and pensioners for this increase.
It should also be noted that this increase should not in any way affect
the price of food and medicines and neither tourism related services.
This year saw also other amendments to VAT legislation. VAT in the EU
is based on the principle that it should be paid where the commodity
to which it applies is consumed. The necessary amendments to the VAT
act to reflect this in our legislation were passed last October.
It must be stressed that those who only cater for the local sector and
who import or export from or to countries outside the EU will still
go on with the present arrangements regarding VAT.
However, as from EU accession there will be the removal of fiscal borders
between Malta and other member states. Member states will have to open
their doors to all Maltese products. On the other hand, products from
the other member states will enter Malta in the same way - without any
Customs formalities. This means that our businesses will have the opportunity
to trade freely with 24 other member states without the need for any
quotas or other restrictions that Malta used to have before joining
As from accession Maltese importers, who up till now have to pay VAT
at Customs to release their consignments of goods coming from the EU,
will enjoy a great cash flow benefit. VAT will no longer be paid at
Customs but will be paid to the VAT department after the product is
sold to the consumer. This does not mean that the consignments received
from other member states will not be reported. They still have to be
accounted for in the next VAT return as soon as these are received,
but the transaction will be neutral, and no VAT payment is due when
an acquisition of goods is made from a member state of the EU. There
will be controls to ensure that the VAT is passed to the department
after the product is sold.
This will definitely bring about more responsibility on traders, directors
of companies, on the accountancy profession and tax practitioners in
general. We need to educate the traders regarding the importance of
both the keeping correct records of transactions and of paying all the
VAT due. The VAT department will be equipped with the necessary IT tools
and through the so called VIES System will exchange information with
other member states on all intra-community acquisitions and supplies.
Each exempt intra-community supply to a Maltese trader will have to
be reported by the foreign supplier to his tax administration, and in
turn the tax administration will inform the Maltese VAT department of
the transactions made by local traders thus effectively leading to controls
on transaction reporting.
Another important change is the introduction of refunds of VAT incurred
in other member states by local traders. According to the European Commissions
8th Directive, Maltese traders who incur VAT in any other member state
on, for example, services received in other member states connected
to their trading activity, may as from accession claim refund of such
VAT incurred. This is another incentive for trade expansion within the
EU. It is one way by which the EU encourages trade between member states.
Local traders should seek to take all such opportunities immediately
these are made available to them.
The VAT department will be launching an educational campaign on these
changes to help everyone understand the new intra-community regime.
The developments occurring in Malta over recent years were the result
of a vision for a more prosperous Maltese Nation. We believe that we
have taken and are still taking the right decisions in order to preserve
the long-term well being of all the Maltese with no exceptions:
from the eldest to the youngest and from the weakest to the strongest.