09 June 2005


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No tax holidays after 2009

James Debono

There are currently 300 companies, including major export industries benefiting from a reduced rate of income tax. But these tax incentives will no longer be available after 2009 since EU competition rules consider tax-based incentives as State aid.
Since the ‘tax holidays’, as they are popularly known, have been a major attraction for foreign investors, industry consultants have raised the spectre that unless something is done to enable companies to continue enjoying a low tax regime, these might consider relocating elsewhere.
A spokesperson for the Ministry for Investments, Industry and Information Technology yesterday confirmed that 300 companies benefit from a reduced rate of tax while an additional 112 companies benefit from the 'Value Added Incentive Scheme'. This incentive will also expire after 2009.
During negotiations for membership, the EU made it clear that operating aid in the form of reduced income tax and the value added scheme were not compatible with EU regulations.
EU directives do allow for certain incentive schemes to be introduced. But talking to this newspaper yesterday, Labour Party Deputy Leader Charles Mangion insists the schemes that can be made available after 2009 should be announced as soon as possible.

During negotiations Malta had argued that operating aid was necessary to offset the disadvantages that arise from Malta’s island status and the additional transport costs incurred by companies investing in Malta.
According to pre referendum publication issued by the Malta EU Information Centre “it was finally agreed that this operating aid can continue until 2008.”
Tax holidays are considered to be a major incentive for foreign companies setting shop in Malta.
In an interview published in last week’s edition of this newspaper industrial relations consultant Alfred Mallia-Milanes said: “the tax holiday was a major attraction” for these companies. He added that in lieu of tax holidays Government should actively consider applying a general reduced flat rate tax on income for companies and individuals.
According to MLP Deputy leader Charles Mangion favourable tax regimes and therefore tax holidays “definitely constitute an important incentive” but he acknowledges that in today’s globalised economy “tax incentives are not enough.”
“At the same time we cannot ignore the fact that Malta whatever stated officially is actually and is perceived as being a considerably highly taxed place of business.”
Mangion quotes a recent study conducted amongst the new EU member states by the Centre for European Economic Research, which confirms that Malta imposes the highest effective tax burden among new EU States.
“Therefore any new incentive scheme has to address this reality,” insists Mangion.
According to the Ministry’s spokesperson, the 300 companies currently benefiting from a tax holiday are also entitled to an investment tax credit which will still be granted after 2009.
According to the same spokesperson there are also a further 60 SMEs that have been certified as eligible to benefit from a full tax exemption up the year 2012.
According the pre-EU referendum publication: “incentives for investment are available in other EU countries and there is no reason why they should no longer be available for Malta if it joins the European Union.”
Asked to state which EU compatible incentives are being considered to offset the impact of the removal of tax incentives, the Ministry ’s spokesperson insisted that number of incentives have already been included in the Business Promotion Act.
These include; investment allowances reduced tax rates on reinvested profits, investment tax credit, soft loans, and loan guarantees and loan interest subsidy and training assistance.
The Ministry’s spokesperson added that Malta Enterprise would continue to launch other support schemes from time to time.
“During the past year Malta Enterprise has launched the following schemes which are not listed in the Business Promotion Act and which are compatible with EU competition rules. These include the compliance scheme for SMEs, the Food Processing Scheme for SMEs, Ta' Qali Crafts Village Regeneration Scheme, the Operations upgrade scheme, the Market Entry Scheme and the Innovative Start-Ups Scheme.”
The MLP Deputy Leader insists the schemes that can be made available after 2009 should be announced as soon as possible.
“Any new investment whether it consists of a further investment by an existing business or a new prospective investor has to know exactly what benefits or incentives we can offer so that he would be able to make the necessary evaluations.”
Tax Holidays apart, the MLP’s deputy leader insists that the most important factor in attracting new investment is the quality of the workforce.
“This is our main resource and the present educational statistics leave much to be desired to say the least. Studies by OECD show that apart from tax considerations, prospective entrepreneurs focus more on .the skills of the local workforce, the extent of bureaucratic red tape and how it impinges on the cost effectiveness of the business apart from other considerations.”
“We have to reduce and streamline our administrative bureaucracy and ensure good governance and efficiency,” concluded Mangion.

jdebono@newsworksltd.com

 



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