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maltatoday, WEDNESDAY, 14 JANUARY 2015 11 Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way Oil prices sharpest fall since 2009 Oil prices took another sharp turn down- wards on Monday to levels not seen since the 2009 recession. International banks predicted even lower prices later this year because of an oversupplied global crude market. The latest daily downward spiral of more than 5% has brought several crude oil benchmarks down by more than 55 percent since June, in one of the fastest drops ever for the volatile commodity. The drop came even as Venezuela and Iran joined forces to persuade OPEC to cut production; Canadian Natural Resources, a major global producer, announced deep investment cuts; and American companies dropped their rig drilling count at quickening speed. The plunge began after Goldman Sachs released a bearish oil report Sunday night predicting that the American price benchmark, which dropped to about $46 a barrel on Monday, would fall to $41 in three months and $39 in six months – before recovering to $65 by the end of the year. "We believe this bear market will likely be characterised by more of a U-shaped recovery in which markets take longer to recover," the Goldman Sachs report said, "and will likely rebound to far lower prices from where they sold off from." Drivers abroad but not in Malta continue to enjoy the benefits of the oil price drop. The average price in the US for a gallon of regular gasoline on Monday was $2.13, according to the AAA auto club, seven cents lower than a week ago, 47 cents lower than a month ago and $1.17 below a year ago. The club said that 18 states now had average gas prices that were under $2 a gallon and that "this number could rise to 25 by the end of next week given current trends." Oil analysts say the 93-million-barrel- a-day global oil market has a supply surplus of one million to two million barrels, and that surplus is not going away soon. American production, which has grown by more than a million barrels a day in each of the last three years because of a frenzy of shale drilling in North Dakota and Texas, is still growing, though at a slower rate. The United States onshore rig count, according to the Baker Hughes oil service company, dropped by 60 rigs the second week of January, but the count still remains little changed from a year ago since rigs are typically rented on multiyear contracts. Elsewhere, production and exports are still growing in several countries, most notably Iraq. Slowing economic growth in Europe and parts of the developing world is curbing demand. And as the Goldman Sachs report noted, a decade of investments in global land storage and tankers means that producers can keep producing oil to keep up their revenue without running out of room to store their excess crude oil output. The best event for a quick rebound in oil prices would be a reversal of OPEC's decision last month to leave its production essentially unchanged. President Nicolás Maduro of Venezuela travelled to various Gulf producing countries over the weekend to persuade them to do just that. Senior Iranian officials agreed that several political opponents — a veiled reference to the United States and Saudi Arabia — were trying to undercut them by using oil as a political weapon. However, Saudi Arabia, the most powerful member of OPEC, would agree only to form a commission with Venezuela to periodically review prices. OPEC is supposed to be a cartel, but its members are competing fiercely for market share. Just last week the United Arab Emirates joined Iraq and Kuwait in trying to undercut Saudi Arabia, ostensibly a close ally, by pricing its crude below Saudi levels in Asia. The discounts have become increasingly necessary because the United States is importing less OPEC oil virtually every month, and oil once destined for the United States is being sent to China, India and the rest of Asia instead. "Squeezed is a good word for the OPEC exports to the Asian markets," said Michael Lynch, president of Strategic Energy and Economics Research, a consultancy, who has advised OPEC in recent years. "That won't change until you get cooperation among the various members of OPEC, especially Saudi Arabia. The lower the price goes, the closer we are getting to a breaking point." Matthew Vella National debt has been cut down back into familiar third-quarter territory to reach a level of €386 million as at September 2014. Debt levels were cut by €132.5 million, the second highest reduction in quarterly debt since 2009. Up until mid-2014, debt was at €518 million. The debt reduction in the third quarter was also the highest of any third quarter since 2009. The main drivers were a reduction of €98.6 million in short-term debt and €40 million in long-term debt. In a statement, the government welcomed the data, saying government revenue had increased by €98 million over the third quarter of 2013 when tax cuts this year struck €27 million over regular tax revenue. Total revenue in the third quarter 2014 stood at €790.4 million, an increase of €98.3 million when compared to the third quarter of 2013. This was mainly triggered by higher proceeds from taxes on income and wealth (€38.5 million), taxes on production and imports (€34.4 million) and net social contributions (€11.2 million). Receivables from current transfers, market output and capital transfers also registered increases, as opposed to, property income receivable which decreased by €4.2 million. Total expenditure in the third quarter amounted to €820.1 million. The largest increases were recorded in compensation of employees (€17.5 million) and current transfers payable (€15.8 million). Added outlays were also recorded in subsidies, gross capital formation and intermediate consumption. On the contrary, capital transfers payable, social benefits and social transfers in kind and property income payable went down by €2.1 million, €2.0 million and €1.7 million respectively. During the quarter under review, in relation to financial transactions in assets, currency and deposits registered a decrease of €335.7 million over the previous quarter. In addition, other accounts receivable decreased by €7.4 million. Conversly, long-term loans, equity and investment fund shares, and short-term loans added €2.4 million, €2.3 million and €1.3 million respectively. With regard to financial transactions in liabilities, the major decrease was recorded in other accounts payable with €207.5 million. Short-term and long-term debt securities went down by €98.7 million and €39.7 million respectively. While long-term loans added €4.6 million and currency and deposits increased by €2.4 million. Total general government debt outstanding at the end of September advanced by €218.3 million over the comparable period in 2013. General government debt amounted to €5,627.3 million, of which €5,623.4 million related to central government. The increase in central government debt was underpinned by higher long-term debt securities (Malta Government Stocks) of €311.7 million. Long-term loans went up by €66.8 million, whereas short- term debt securities and short-term loans declined by €114.1 million and €51.2 million respectively. The euro coins issued in the name of the Treasury, which are considered as a currency liability pertaining to the Central Government, amounted to €59.5 million, a rise of €5.2 million over the euro coin stock recorded at the end of September 2013. Local government debt went down by €0.1 million and stood at €3.8 million. Third-quarter debt down by €132 million Property tax will have adverse effect on the market – Chamber of Commerce The Malta Chamber of Commerce, Enterprise and Industry has expressed strong disagreement with the new prop- erty tax announced by the government in the budget for 2015 and urged the government to reconsider its position. The new regime, it says, will have an adverse effect on the property market, which has been recently showing signs of recovery after a period of sluggish growth. "The Malta Chamber maintains that the proposed tax will have a negative impact on large projects currently being undertaken and which are destined to increase the quality of residential properties in Malta," the Chamber said in a media statement. "Most of these projects have been financed through public bonds, which bondholders have acquired on the basis of financials and projections, which were based on the current tax rules. "The proposed change in property tax rules is likely to affect the 'legitimate expectations' of investors and bondholders who would have acquired their bonds under a different premise." The Chamber also noted that the proposed tax provides opportunity for abuse as it removes the incentive for buyers to declare the true value of the property. "The proposed property tax incentivises vendors to under-declare the value of their property sales since the property tax amount paid would be lower and there would be no impact on a prospective purchaser as far as tax is concerned should the owner decide to resell the property," it said. The Malta Chamber also warned that the new tax regime, as proposed, encourages developers not to request fiscal receipts related to costs. This will result in lower tax income for the government. Apart from not collecting VAT, the government also risks tax leakages from the sale of property and reduced tax revenues from the suppliers who will not declare the revenues from the transactions on which VAT was evaded. If the government wants to be in a position to be able to "safely" project its revenues from tax on property, then the Malta Chamber proposes it should simply reduce the rate at which provisional tax is payable. Alternatively, it offers, the government should consider replacing the new proposed tax with a final withholding tax, which will be paid on the final deed of sale. The Malta Chamber expressed its support for the points raised by the Federation of Estate Agents in the media that the tax will have to be paid even in cases when the property will be sold at a loss. Though not the norm, these cases are not rare. The principle of charging a tax on a loss is not acceptable, the Chamber said. The proposed tax regime also appears to fall outside the ambit of double- taxation agreements, as it is defined as a sales or transaction tax, and would not therefore qualify for credit or relief under such agreements, the Chamber argued. This will lead to tax being paid twice in two countries as the case may be, for the same sale. The Malta Chamber urged the government to reconsider its position on the announced property tax, in light of the points raised.