Issue link: https://maltatoday.uberflip.com/i/1204548
of whatever remains… The Chamber has complained about injustice in other areas: such as a tax rebate system which creates a non-level play- ing field for Maltese business- es. But isn't the rebate only applicable to businesses which generate their profits outside of Malta? That is how the tax rebate sys- tem was originally devised, when it was first introduced some time before we joined the EU. The government of the day in- troduced a new tax system, un- der which foreign investments traceable to foreign ultimate beneficiary owners – in other words, where the person mak- ing the profits is not a Maltese citizen – would at the end of the day only be taxed at 5%. Because while the full 35% is initially paid, 30% of it can later be re- claimed within a number of days stipulated within the law. This is not unique to Malta; it is common to many small states that need a bigger push to high- light themselves in the eyes of foreign investors. But when the law was first drawn up, it was limited to businesses that were set up in Malta; paid taxes in Malta; but then, conducted their business overseas, so as not to compete in the domestic mar- ket. When Malta entered the EU, however, we were told that there could be no discrimination be- tween businesses targeting the Maltese market, and others targeting foreign markets. That opened up a Pandora's Box. Suddenly, there were Maltese businesses operating in the same line as the foreign ones, which – unlike their Maltese compet- itors – benefited from a 30% tax rebate. It resulted in very unfair direct competition… Would a foreign-owned super- market chain like Lidl be an ex- ample? Lidl is an example, yes. But in the sense that it is eligible to claim the 30% refund. It doesn't mean that Lidl actually claims the 30% refund every year: but the option is always open to them, if they want to take it. And Lidl operates in direct competi- tion with other operators, both large and small… Prime Minister Robert Abela had made a campaign pledge to address this issue; but Finance Minister Edward Scicluna has stated that it is 'impossible' to change the system. So what are Chamber's expectations? We have been on a bit of a jour- ney regarding this, to be honest. It is a very delicate issue, and we understand the importance of the implications for Malta… be- cause, at the end of the day, this tax system translates into enor- mous revenue for the country. So our starting point for the discussion was Minister Sciclu- na telling us that the disadvan- tage didn't really exist; and that foreign investors were treated exactly like the Maltese. But this only raised the question: why are so many foreign companies investing in Malta? There must be something attracting them here… Over the years, others took an interest in this matter, and it is now recognised – in a number of reports, including one by Er- nst & Young recently – that the tax rebate is indeed one of the main pull-factors for foreign investment in Malta. So I think we have now surpassed the bar- rier of lack of clarity, concerning who is advantaged and who is not. Now, we have reached a sit- uation where the new govern- ment is telling us that it will not change the system in any way, because it is 'sacred' to Malta's national interest. And really and truly, we are fine with this… But you have just described the same system as 'unfair' and 'discriminatory' towards Mal- tese businesses… We believe it is not an un- flawed tax system; but its flaws can be tackled in other ways. Our position is that, if our tax system is so important for Mal- ta – and the figures show that it is – let's leave it in place. But we have also put forward proposals on how it can be finetuned. On the other hand, Prime Minister Robert Abela did say that he wanted to achieve a lev- el playing field, where everyone has to compete fairly. As things stand, Maltese businesses pay 35% tax; so the playing field is clearly not level. Having said this, there are a lot of other ways the situation could be improved; a lot of comple- mentary measures that can be taken, to make up for this dis- parity. So we need to come up with a clever way to put Maltese busi- nesses back on a level playing field with their foreign counter- parts. That is what we are asking for… and it is very much in line with what Abela is saying: i.e., that un- fairness is unacceptable; and that it relegates Maltese businesses to second-class status. And besides: if something hap- pens to Malta, foreign business- es will be the first to pull out, at the end of the day. So it is Mal- tese businesses that we need to take care of; because if we don't, they will be the first to falter. PHOTO BY JAMES BIANCHI 9 maltatoday | SUNDAY • 26 JANUARY 2020 INTERVIEW We have reached a situation where the new government is telling us that it will not change the tax system in any way, because it is 'sacred' to Malta's national interest. And really and truly, we are fine with this…