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News • September 05 2004

A ‘consumer pays tax’

Confusion still reigns about the working of the new eco-contribution, with a general feeling that the tax will affect business badly and not help the environment. The GRTU’s director general Vince Farrugia described the tax as “a consumer pays tax,” differentiating it from other eco-taxes that are “producer pays,” and in a hard hitting press conference this week said his Union was not pleased at all about what had been introduced.
Vince Farrugia does not see the taxes having a big impact on the cost of living or on the smooth running of business, but worries the tax will reduce consumer spending and further slow down economic growth. He also questions the environmental credentials of the tax and sees first time buyers of white goods bearing its brunt. On the positive side Farrugia has said that Prime Minister Lawrence Gonzi has given his word that the government will come to the economy’s aid through the MCESD process, together with the social partners, to bolster the economy should it be confirmed that the eco-taxes have negative impacts over the coming months.
The GRTU is suggesting a decrease at the next budget of the income tax ceiling from 35 percent to 30 percent and Farrugia said: “Such a decrease will benefit the middle wage earners and would encourage investment and creativity.”
Highly critical of the new tax was economist Alfred Mifsud, writing in the press, questioned the tax from every angle and pointedly asked whether it was the GRTU that was running the county rather than the government. Mifsud believed the Union has bullied the government into not accepting to charge the tax on existing stocks and asked: “How could the government accept arguments that this would have caused business cash flow problems when the same importers’ cash flow has benefited, as from 1 May, from saving VAT payment at customs clearance stage?”
In the meantime retailers that MaltaToday spoke to this week admitted that they remained uncertain as to whether items in stock are to be charged the same price as new consignments that are subject to the tax. It also remains unclear what is to happen with bottles that are refilled and whether the tax will apply only once at the beginning of the bottle’s life, or each time a bottle is sold.
Waste expert Ing Mario Schembri, who is behind the Green Dot initiative to recycle packaging waste, is among those who have not been impressed.
One of the principle aims of an eco-tax is to direct consumer spending towards more environmentally friendly products, but Schembri does not see that aim being reached. “In its format, this eco tax law does not even attempt to differentiate between what is environmentally friendly and what is not. A fully biodegradeable product for example, will be taxed just the same as one that is not. So where in this eco-tax system is the mechanism to make consumers want to alter their buying habits?” Schembri told this newspaper.
The engineer believes that taxes on their own cannot change a peoples’ mentality and he told MaltaToday: “Taxes do not deliver change - they only confuse issues. Has the application of a tax on cigarettes stopped anyone from smoking even though most people acknowledge that smoking kills you?”
One of the main criticisms of the law is that as it stands it does nothing to ensure that products will be re-used or recycled. When MaltaToday asked Schembri whether he thought those aims would be achieved he said: “No. Why should it? There are other laws in place for this purpose. Under separate Regulations companies are obliged to collect back and recycle their products. Such companies will not be liberated from such legal obligations through the collection of eco taxes as in truth companies are not paying anything. The tax is simply being passed on to the consumer.”
Schembri told this newspaper that there are clear indications that Malta will not manage to keep to its commitments with the EU in line with the EU’s packaging directive: “By 1 May 2004, Malta had to recover some 14,000tonnes of packaging materials from the waste stream. By 31 December this must be in the order of 20,000tonnes and in a few years time this target more than doubles. These are Malta's committments with the EU. We are nowhere close of achieving these environmental obligations as an EU State.
Not now, not in the foreseeable future.”
Ing Schembri said the taxes introduced last week would not help: “Eco tax will not get us even close. Government is in a desperate need of industry-led initiatives. We are wasting precious time and money fooling around with taxation schemes. Entrepreneurs will simply move on. It is only a question of time that Malta's failure to deliver upon its commitments is picked up to our collective embarrassment. Many are familiar with the hefty fines imposed on Greece by the EU when it failed to deliver on its environmental commitments. Our fate, seems to be heading very much in that same direction. Shall we then organise an Olympics to recover our lost pride?”
Asked how the tax could have been better drafted and introduced Schembri had this to say: “No tax however drafted will make companies act upon their producer responsibility. Most European countries have managed to establish sound environmental practices by successfully introducing industry-led schemes.
“Industry knows that consumers place a value on environmentally sound products and are willing to pay extra for such products.
“Change can only come from industry. A government imposed tax stops all that. It kills any initiative to even attempt setting up any schemes. Tax simply drains the money away from where they are really needed.”

GRTU sees pricing problems

While businesses are struggling to understand the eco-contribution, the general public is even less informed of what it is all about, the GRTU’s director General Vince Farrugia told MaltaToday.
“The major problem that has been raised by many retailers relate to pricing. The problems were really created by the arrogant comments of Benny Borg Bonello of the consumers association who on his own admission was not consulted on the functioning of the eco-tax system and knew nothing about it yet he felt he should comment,” an angry Farrugia commented.
“His suggestion that retailers will overcharge were in clear contrast to our instructions to retailers to proceed normally as if the eco-tax was never introduced ie to put their mark-up and VAT on top of whatever price they obtained from their suppliers as per the last tax invoice.”
The GRTU has made it clear to retailers that it is not up to them to mess with the eco-tax. “We are satisfied from our inquiries that the majority are acting correctly. If anything it is the consumer who is confused and is asking retailers too many questions as consumers have no idea what the whole thing is all about,” Farrugia added.
Asked whether information published and broadcast about the tax was well understood by its members, Farrugia replied: “In general yes. But I had four persons on the GRTU phone all day. Many others have seen our website and understood our circulars. Many who do not belong to us of course suffered even though we did our best to help everyone.”
Farrugia could not explain exactly what should happen when a retailer holds both old and new stocks of the same item, some with the tax and some without, except to explain that customers will always look for the cheaper prices and the items not subject to tax will be sold first. He did say that GRTU was happy to note however that the majority of traders appreciated that GRTU has saved most of them terrible problems to their cash-flows and a serious unproductive bite to their credit line as a result of the Union’s success in convincing government to withdraw its insistence on payment of eco-tax on stock even prior to any sales and on every import immediately on exit from customs, again prior to they receiving any sales income whatsoever.





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