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NEWS | Sunday, 06 January 2008

More tax on banks, less charges – Labour, AD

Only Azzjoni Nazzjonali promises status quo with less tax on big business

By Charlot Zahra

Bank charges, government fees, public and private monopolies, tax and compliance with EU rules – here are the five areas of concern the Chamber of SMEs (GRTU) say are responsible to increased costs for businesses and inflation.
The GRTU singled out excessive bank charges as one of the factors adding costs to Maltese businesses. Labour’s shadow on finance Charles Mangion says the banking duopoly, which dominates almost 90 per cent of the market, is having a negative effect on businesses and private individuals.
“A Labour government will ensure that the Malta Financial Services Authority (MFSA), looks into the matter expeditiously and rule on this. More specifically, the MFSA will have to produce comparisons of various kinds of bank charges for various services provided by local banks, and those of other EU countries where wage levels are similar to those in Malta.”
Mangion says that since Maltese hourly labour costs range between those found in Portugal/Slovenia at the upper end, and the Czech Republic at the lower end, then bank charges should like within tariffs charged in these countries.
“In the event that such charges are found to be higher, banks will be asked to justify their tariff structure and in the event of an unsatisfactory reply, these would have to lower their charges to those comparable in countries whose wage levels are similar.”
On his part, Edward Fenech, Alternattiva Demokratika (AD)’s spokesperson for finance, reiterated the party’s proposal to increase tax for banks in a bid to reflect their duopolistic advantage. “The tax system should reflect this duopoly position. AD has called for a decrease in the basic tax rate on small companies to 30%, and an increase in tax on local banking activities to 40%.”
On the contrary, Charles Attard, president of Azzjoni Nazzjonali (AN), says the party won’t impose restrictions on bank charges, remarking instead that “it is evident though, that some administrative charges on top of the interest rates are unbearable.”

Administrative charges
But it’s not just banks which impose myriad charges – government departments and various state entities such as the planning, transport, tourism and medicines authorities all levy various fees on businesses.
Mangion accuses the government of ignoring the growing bureaucracy and inefficiencies, allowing most authorities to keep spending unchecked and to raise revenues through higher fees to finance their spending. He says Labour will submit the authorities to an audit to gradually reduce red tape. “The fact that such an issue is repeatedly raised by the business community is only a signal that in effect the government has failed to make any inroads on such a matter. A new Labour government will focus on expenditure control in these entities, and within the public sector in general and any change or introduction in tariffs or charges will have to be justified on the basis of detailed costings.”
Fenech did not submit a reply to this question.
On his part, Attard said AN will decrease administrative charges through a reduction of the “exhaustive spending” of these same departments. “In Malta, we have a plurality of authorities and government bodies, all incurring overheads and thus implementing un-necessary administrative charges.”

Monopolies
Not only do public entities hike up costs with their fees – private and public monopolies and oligopolies (where a market is controlled by a small number of dominant players) also impose high tariffs on businesses with no risk of competition: such as Enemalta for electricity and fuels, GO and Vodafone for telephony, Freeport and Valletta Gateway Terminals for port handling, and Federated Mills for flour.
Mangion says more effective regulation is required from the Office of Fair Competition, remarking how the UK counterpart recently heavily penalised big name supermarkets for price fixing practices. He asks if the same situation prevailing in Malta.
“I think such situations ought to be addressed by demanding that the regulatory structure submit a report in parliament, highlighting comparisons of price levels of various products and services between countries with wage levels similar to Malta.”
By collating information from the national statistical offices on the price of a whole basket of goods and services and comparing it to EU countries where wage levels are similar to those found in Malta, Mangion would repeat the same comparative exercise as for banks.
“Such information would enable government to act decisively thus ensuring a level playing field and protection of the consumer,” Mangion says, accusing the government of not taking any punitive action against abusive price increases.
Edward Fenech also insists on more stringent price regulation for natural monopolies like Enemalta, WSC and Maltapost. “AD has always been against monopolies except for those classified as natural monopolies like Enemalta and Maltapost. These companies should remain under state ownership and be subject to more stringent price regulation.”
But Attard, who concedes “all these costs are heavy burdens for the entrepreneur”, said there is little that can be done for entities like Enemalta, Vodafone and GO which “are corporate bodies that require commercial trading in order to fund their operations. AN is proposing lesser taxes so that the spending power will boost automatically.”

Taxation
The GRTU singled out the “undue harshness” of the VAT department and the tax on transfer of property for use by enterprises, deeming it “too excessive”.
Edward Fenech dismisses the GRTU’s claims on taxation. “If property taxes are too high on business, then they are equally high on individuals. AD believes in de-taxing rent and taxing hoarding.”
Mangion says tax has to be collected on time: “Employees pay regularly their income tax and social security contributions, and likewise, businesses and self-employed have to pay their tax obligations, be it VAT, corporate tax, or personal income and social security contributions when these are due.
“Labour’s strategy to restrain the tax burden is two-pronged: increasing efficiency in the public sector, imposing tighter expenditure controls, zero-tolerance on corruption, and ensuring value for money in public sector projects; the second approach is stimulating the economy to grow faster particularly by better exploiting the assets of the country, such as the Grand Harbour area, and with a more proactive approach in attracting foreign investment.”
Attard claims the VAT Act is “very fair” because everyone pays VAT according to what he spends. “The scandal lies in income tax. AN will gradually lower taxation of individuals to 18% maximum (after the rebates), besides allowing the first Lm5,000 tax-free for individuals and the first Lm6,000 tax-free for couples, and gradually lower corporate tax to 18%.”

EU compliance
Finally, the GRTU also identified the “excessive zeal” in the implementation of EU rules, which further increase stringent new practices on business.
Mangion promises more consultation with business organisations before EU law is adopted to identify those rules adversely affecting them and find acceptable alternatives. “One could explore the possibility of formulating acceptable modifications to such regulations and push them forward by our representatives at the European Parliament.”
He says Labour realises the need fore more dialogue with business interest groups, trade unions and consumer interest groups to discuss proposals for new rules or amendments put forward by the European Commission. “This is necessary so that during the process of approving such regulations, the government would be in a position to bargain for the best possible outcome in Malta’s interest.”
Fenech says that “some excessive zeal” in the implementation of EU rules is often a result of a rules-base of public administration, rather than a principles-base.  “However in environmental matters the opposite is true and regulation has become a joke for large monster projects, whilst being stringent on minor alterations.”
AN’s Charles Attard offers no flexibility: “The EU rules are there to be obeyed. GRTU knew about these rules before it voted for EU and presumably all its members did. I am sure the GRTU is very diligent in giving advice to its members and I categorically rule out any error of omission on the part of the GRTU.
“Some citizens claim some of the EU rules were not disclosed to the public and other accuse the government of telling quasi-truths. AN endeavours to discuss issues with the EU with the intention to make fellow member states understand the background and the size of the Maltese culture.”

czahra@mediatoday.com.mt

 



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