Cut VAT to 15%, remove excise tax on personal care products, business lobby group tells government

VAT should be reduced to 15% and excise tax on personal care products removed to tackle inflation, the lobby group representing small and medium enterprises said.

Abigail Agius Mamo, chief executive of the Chamber of SMEs, said on Thursday that a reduction in the VAT rate to 15% from 18% would ensure lower prices across the board for consumers.

She added the reduction will only eat away at the windfall revenue the government has been making from VAT as a result of higher inflation and thus will not impact public revenue.

Additionally, the Chamber of SMEs is calling for the removal of excise tax on water, non-alcoholic beverages, hair products, personal care, make-up, shaving products, deodorants, wipes and body soaps. Mamo described this as a “hidden tax”.

The comments came on the day that a price stability agreement between the government, major importers and retailers came into effect. The agreement will result in a 15% reduction in the price of 15 categories of food products and will remain in force until the next budget.

The Chamber has criticised the agreement, calling it an unwarranted intervention in the free market.

Mamo said the Chamber was proposing other ways of tackling inflation without distorting the free market principle.

She also called for a tax cut for Maltese companies to ensure a level playing field among businesses operating in Malta.

Survey findings

The Chamber was reacting to the findings of a survey with its members carried out by MISCO, a research firm.

The survey shows that inflation is a top concern for SMEs and business operators would like government to do something about it.

The second topmost concern is a shortage of employees with the Chamber suggesting that the validity of work permits for foreign employees earning more than €25,000 should be extended from one year to two.

The survey, which is carried out quarterly, shows that 40% of businesses represented by the Chamber reported a drop in profits last year.

Almost 30% said their sales had remained unchanged while the rest reported sales growth of between 10% and 30%.

When asked what they thought had led to a decrease in sales, most businesses mentioned a decrease in customer spending power, more competition, inflation, illicit trading and global uncertainty.

Asked what was leading to price increases, businesses mentioned wage costs, an increase in overhead costs, bank charges and interest rates, and transport costs.

Businesses said inflation, employee shortages and excessive competition were the three most pressing issues their businesses were facing. They also mentioned corruption and lack of good governance, unfair competition, transportation costs, lower client demand and traffic congestion as other issues.

Country moving in wrong direction

Almost three-quarters of businesses believed the country was moving in the wrong direction. There was an 8% decrease in the number of businesses that gave this reply when compared to the previous quarter.

More than half said they were unsure whether the next 12 months were good for investment while more than a quarter said it was not.

As for future prospects, more than 30% said 2024 will be worse than last year. The rest were split between those who said it would not change from last year and those who said this year would be better.

The survey was conducted among close to 300 businesses. Almost half the enterprises who responded employed up to nine employees, a quarter employed between 10 and 49 workers, 15% had over 50 employees while 12% had no employees.

The majority of respondents were in retail, importers, distribution and wholesale. Others were in the transport sector, manufacturing, construction, machinery and production, tourism, food and beverage, ICT, education and training and entertainment and marketing.