SMEs Chamber welcomes PN call for tax level playing field

The Chamber of Small and Medium Enterprises (SMEs) has welcomed the news that the Nationalist Party intends to propose a fairer taxation system for Maltese SMEs.

Chamber CEO Abigail Mamo told BusinessToday that she was looking forward for the PN to publish more details about its proposal, as this was a battle the Chamber took on a couple of years ago.

The Chamber’s 2018 Business Performance Survey showed that unfair competition in the form of tax incentives for foreign traders was a problem for a majority of small businesses.

One of the biggest draws for foreign companies to Malta is the six-sevenths rebate on Malta’s highest tax rate (35%) from global dividends when those profits have been booked in a Maltese holding company.

It effectively allows shareholders of a foreign company to pay 5% tax on the profits generated globally once they get kicked up to a “Maltese” parent company.

On Tuesday, Grech said that while the country should welcome foreign investment, local businesses could not be disadvantaged due to higher taxation rates.

“The system will strengthen the bargaining power of Maltese businesses, because at the end of the day, they are competing for the same market,” he said.

Mamo agreed and said that, as things stand, the system was “very unfair” for local competing businesses.

“We too are not against giving incentives to foreign investors in Malta,” she said. “But there are ways and means of doing this without hurting local businesses.”

Mamo insisted the system could still apply for certain sectors.

“The situation is that if an Italian opens a restaurant in Valletta, he will pay just 5% tax,” she said. “While this makes sense for large gaming companies which employ Maltese people, it doesn’t make sense that this also applies to businesses such as restaurants.”

She said the system effectively treated local ventures as second-class enterprises.

‘Suicidal’

But while the PN and SMEs Chamber might be on the same page as to equal tax rates for both local and foreign businesses, Prime Minister Robert Abela has already made it clear he has no intention of changing Malta’s competitive taxation system.

In January 2020, days after being elected Labour Party leader and prime minister, Abela said the removal of the tax advantage for foreign companies would seriously threaten the Maltese economy.

And although during that election campaign he had initially said Maltese companies were being placed at a disadvantage compared to their foreign counterparts due to the tax system, Abela later said he had been grossly misquoted on the matter.

“It would be suicidal for Malta if the 5% system were to be removed,” he said then. “I did not say I would do that, and I am not going to do that.”

EU tax harmonisation

Malta is under immense pressure by the EU, which is more intent than ever on a minimum level of taxation across the bloc.

Caruana also said Malta’s taxation system may have to be tweaked to placate international disquiet because, although Malta was doing nothing wrong, it had to be “astute” when trying to convince others.

“We need to defend [the taxation system] and convince others but we also have to change where necessary because it will be useless to battle against the tide and stamp our feet... we need to be astute,” Caruana told business operators and stakeholders in January.

He said earlier this year that only three other EU member states - Ireland, Cyprus and Luxembourg - .

He said Malta would seek to build bridges with Ireland, Cyprus and Luxembourg, the only other three EU member states which disagree with the argument in favour of minimum taxation levels to ensure they all present a common front against tax harmonisation.