Issue link: https://maltatoday.uberflip.com/i/1515985
8 OPINION 15.2.2024 AI - a sudden transformation of commerce George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island O ne may be excused not to re- member how shopping by housewives in the U.S. devel- oped since the early fiies and sixties. In Malta, we dreaded such years of poverty and long queues of jobless, that now tri- umphantly pave way to a thriving econ- omy which boasts full employment plus the attraction of over one hundred thou- sand TCN's. ese signed up for better work condi- tions in Malta after facing meagre wag- es in East Asian countries. Most were lured and registered against payment by local temping agencies. So are we the isle of milk and honey? Not so quick. e pangs of inflation hit us following the calming measures taken by Castille to quell the pandem- ic and render our shores wide open for exports. On a positive note, Malta Internation- al Airport is currently forecasting over- all passenger movements will climb to eight million this year, which translates into a healthy growth of 2.5% over the 2023 level. In fact, MIA's CEO made ref- erence to data from 'Eurocontrol' that indicates that passenger traffic across Europe in 2023 reached around 92% of the 2019 pre-Covid levels. e tour- ist season has been very rewarding last year (albeit at a lower per capita return) as we picked up the slack suffered dur- ing 2020 to 2022 period. roughout 2023, the local deficit narrowed by €779.3 million when com- pared to 2022, reaching €4,061.2 mil- lion, according to NSO statistics. At the same time, not all tax payers are render- ing to Caesar the true coin. Malta has the second-highest VAT Gap – an esti- mate of the overall difference between the expected theoretical VAT revenue and the amount collected. A recent IMF report warned that, de- spite impressive growth, Malta's phys- ical and public health infrastructures are creaking under rapid population growth. We badly need to refurbish St Luke's Hospital, currently abandoned and sadly derelict. Naturally, such ne- glected public expenditure for the infra- structure must be funded by taxation or more borrowing as fiscal pressures are increasing fast. e Chamber of Commerce last month demanded the removal of duties on consumer goods that are in frequent use, such as water, non-alcoholic bever- ages, shampoo and hair products, per- sonal care, make-up, shaving products, deodorants, wipes and body soaps. Such products are not covered by the govern- ment's omnipresent "Stabbilta" enforc- ing a 15% price reduction scheme - so such duties constituted a "hidden tax". e sins of our economic success in- clude shortage of skilled workers. e sombre mood about jobs scarcity in the retail, wholesale, importation and dis- tribution industries is felt in other sec- tors such as professional and legal offic- es. e property sector faces a similar downturn, even if their concern rarely makes headlines, given that the NSO recently tells us the number of signed promises of sale is not showing a drop compared to previous years. Another headache is the US inflation. In the international sector one notes the high Federal rates which one hoped these will be trimmed this March. Fed chairperson Jerome Powell said that a March interest rate cut is unlikely. e Fed maintained its benchmark feder- al-funds rate at 5.25 and 5.5 per cent, the highest level in over 20 years, as it awaits more convincing evidence that inflation, which saw a significant de- cline at the end of last year, will not spike higher. e ECB's governing council reit- erated in its statement that it believed rates are at levels that "maintained for a sufficiently long duration, will make a substantial contribution" to returning inflation to the two-percent target. e European economy is now experiencing the extreme effects of Darwin's theory more frequently in the digitalised busi- ness world. Surely Malta is not immune. One notices aggressive, almost bel- ligerent 'disruptors' appearing virtually out of nowhere, dominating new mar- kets quickly, or driving long-established top firms to ruin with radical business models without industry experience. ere is then hardly any room left for potential competitors in Malta to gain a foothold with an alternative offering. A respite came last month by the in- troduction of a long-awaited European Union Artificial Intelligence Act. In its credo, it seeks to strike a delicate bal- ance between fostering innovation and safeguarding fundamental rights and security within the digital ecosystem. Can MDIA take note and sharpen its educational and innovational prowess? In brief the A.I. Act introduces the con- cept of classification of the risks posed by the use of an AI system. Simply put, there are four tiers of risks, the highest of which applies to those uses that are considered unacceptable for people's security and fundamental rights, such as social scoring. e second, and per- haps most significant, tier identifies "high-risk" AI systems, subjecting them to a myriad of ongoing obligations, in- cluding testing, risk mitigation, human oversight, data governance, cybersecu- rity, accuracy, detailed documentation. Finally, the third and fourth tiers consist of limited-risk systems where minimal transparency requirements are imposed to strike a balance between innovation and regulatory oversight; and minimal/ no-risk AI systems, where voluntary codes of conduct are encouraged. ere is more about annexes II and III which list specific high-risk AI sys- tems. Annex II includes all AI systems that are incorporated as a safety compo- nent within products that are regulated under separate EU legislation, such as medical devices, toys, civil aviation, and motor vehicles. Annex III lists AI systems that, overall, pose a substantial risk to people's security, health or fun- damental human rights, such as AI sys- tems that determine access to and the enjoyment of essential private services, including those systems that evaluate creditworthiness and pricing of life and health insurance. e prohibition on banned AI systems is slated to be enforced later, with the act anticipated to be fully operational by the second and third quarters of 2026, reflecting a measured and deliberate ap- proach to ensure effective implementa- tion and industry adaptation. Upon reflection, Malta's accession to the EU in 2004 has opened the flood gates to myriad regulations, that if re- ligiously followed, guide our politicians to improve good governance, environ- ment, meritocracy and maintain a high- er moral rectitude. In conclusion, the nostalgic picture of US housewives buying staples from an open-air truck remind us how today, the procurement of family requirements in Malta, has improved by the opening of large discount supermarkets; each com- peting to offer a wider choice. Cheers, together we have progressed to build an economy with full employment and economic stability.