Issue link: https://maltatoday.uberflip.com/i/1535025
JAMES DEBONO jdebono@mediatoday.com.mt 6 6 maltatoday | SUNDAY • 4 MAY 2025 NEWS Foreign chains keep prices in check as local supermarkets feel the pinch TAX incentives for for- eign-owned supermarket chains raise concerns over unfair compe- tition but they have been crucial in keeping the lid on consumer prices, a new study shows. A sectoral analysis of the retail sector carried out by the Cen- tral Bank of Malta suggests pol- icy intervention may be needed to address concerns over the tax advantages granted to for- eign-owned companies. The study was based on inter- views with different operators in the retail sector. According to the report, super- markets that are not part of an international chain are facing in- creasing pressure from growing foreign competition, aggressive pricing strategies, and structural tax advantages that favour inter- national chains. The problem has become more acute since the number of for- eign-owned supermarkets kept increasing. These developments, point to a shifting supermarket landscape where domestic retailers are struggling to keep pace. The Central Bank notes that the supermarket sector has un- dergone significant changes, largely driven by the rise of for- eign-owned operators that ben- efit from Malta's full imputation tax system—particularly the re- fund mechanism available to for- eign shareholders. These chains end up benefitting from an effec- tive tax rate of 5%, while Maltese companies have to pay tax at 35%. Maltese retailers argue this sys- tem gives international chains an unfair advantage, enabling them to absorb rising costs and offer more stable prices than their do- mestically owned competitors. Nonetheless, while squeezing the profit margins of domestic competitors, the influx of interna- tional players—often with deeper pockets and better economies of scale—has kept a lid on price in- creases for consumers. Coupled with the growing pop- ularity of private-label products and aggressive promotional cam- paigns, the sector is being pushed to innovate in supply chain man- agement and cost efficiency to re- main competitive. High-end retail faring better Beyond supermarkets, the Cen- tral Bank's analysis takes a deeper dive into other retail segments, painting a picture of a sector in transition. Luxury retailers have fared relatively well, with affluent consumers continuing to spend despite recent inflationary pres- sures. However, even in this high- end market, some price sensitivity has emerged, leading business- es to adjust product ranges and adopt new promotional strategies. Mid-tier and budget retailers, on the other hand, have faced stiffer headwinds. Declining discretion- ary spending has forced many to slash prices in an effort to main- tain footfall and sales volumes. These discounting strategies, while necessary to stay competi- tive, have taken a toll on profita- bility as operational costs remain high. The hotel retail segment, par- ticularly restaurants operating within hotels, has experienced a mixed recovery following the pandemic. While hotel occupan- cy has improved, food and labour cost increases have eroded profit margins in their in-house dining establishments. Hotel restaura- teurs reported increased custom- er price sensitivity whereby cus- tomers are "opting for one course meals and/or for lower priced items on the menu." Competition prevents businesses from shifting cost onto consumer Across the board, supply chain disruptions—exacerbated by geo- political tensions and transporta- tion costs—have been a persistent concern. Although these pres- sures have started to ease, pricing remains a tricky problem for re- tailers, with increasing competi- tion keeping a lid on prices. "Many companies have at- tempted to pass these costs onto consumers, but competitive pres- sures have limited their ability to do so". As a result, mark-ups have been compressed, with some businesses choosing to absorb the increased costs to retain market share. In fact, companies in highly competitive sectors have experi- enced lower profits. Previous reports had indicated optimism about post-pandemic recovery, with companies ex- panding their offerings and in- vesting in digital transformation. However, the latest study reveals "a shift towards cost-cutting measures" and "defensive strat- egies to protect margins amid some economic uncertainty". The analysis was conducted by economists Warren Deguara, Eliza Farrugia and Christine Borg from the Central Bank's Econom- ic Analysis Department. Foreign supermarket chains enjoy tax incentives that Maltese companies do not Permit for Balluta church parking revoked THE Environment and Plan- ning Review Tribunal has re- voked a permit for an under- ground car park in the former Carmelite convent grounds at Balluta. The permit had been issued despite an unequivocal objec- tion by the Carmelite Order, which owns the site. Plans presented with the ap- plication had proposed relo- cating the existing statue of the Virgin Mary and 11 olive trees and two palm trees to the car park's roof, to make way for three underground levels and a ground-floor level of parking. The tribunal decision effec- tively closes the chapter on a saga that started in 2011 when the order's former prior, An- thony Cilia, had leased the site to his brother John Cilia. In 2023, the court annulled the controversial lease, which was being contested by the order, now under a different leadership, and the Maltese di- ocese. The outline planning permit was approved in November 2019 on the basis of the lease agreement. Before issuing the permit, the Planning Commission had asked the case officer to seek legal advice due to the objec- tion presented by the Carmel- ite Order. The authority's legal office replied that since the applicant had a lease agreement, which contemplated a car park, the applicant did not need "addi- tional consent" from the own- er. The order had even pre- sented a judicial protest asking the PA to stop processing the application. But the PA insist- ed that it was legally obliged to process the application on the basis of the lease agreement. Despite the legal reply, Plan- ning Commission chairper- son Elisabeth Ellul still vot- ed against approval but was outvoted by two other board members—Anthony Borg and Claude Mallia. In its latest decision the tri- bunal noted that the applicant, John Cilia, and the Planning Authority were well aware that the lease agreement was being contested by the Carmelite Or- der. The latest ruling follows the 2023 court decision, which saw the church winning back the land on which the car park was being proposed. The court had ruled that the Carmelite Order's decision to sub-lease the land to a pri- vate developer in 2011 was in breach of the contract by which the land was originally donated in 1890. The original donation contract stipulated that the land on Tower Road in Sliema could only be used for religious reasons. Meanwhile, in February last year, the Carmelite Order an- nounced it was withdrawing from Balluta and Mdina be- cause of a decrease in the num- ber of vocations. Balluta church