Chamber of SMEs proposes VAT reduction to 15.5%

Last Updated on Monday, 31 January, 2022 at 6:49 pm by Andre Camilleri

The Malta Chamber of SMEs proposed a VAT reduction to 15.5% from the current 18% to help small businesses recover from the impact of the pandemic, which resulted to increase in costs, lower sales, and less spending power.

The reduction of VAT was proposed to curb the impact of the current inflation, while also ensuring that the government does not lose money. 

The SME Chamber spoke about the impacts small businesses suffered due to the pandemic in the year of 2021, during the Business Performance Survey Results conference on Monday. The survey was conducted online with a turnout of 250 respondents. 25% of the respondents made part of the Retail, Import, Distribution and Wholesale sector.

The financial constraints which particularly concerned small businesses in 2021 were sales levels, followed by cash flow, being directly connected to sales levels. Furthermore, there was a definite element of uncertainty, due to the impacts of Covid-19, as well as the upcoming election.

Almost all respondents agreed that the pandemic is something which they must live with and that ultimately, restrictions should be eased, and quarantine be reduced in order for their businesses to survive. Several businesses have suffered a hindrance in performance due to quarantine rules, as 13% reported that 30% or more of their employees had to undergo quarantine.

“Even main banks around Malta could not operate normally, let alone small businesses,” a spokesperson from the chamber said.

The turnover of 2021 compared to that of 2020 showed an increase due to the public having accepted the pandemic situation as it is, improving consumer confidence. However, there were still businesses whose turnover decreased, so much so that it was worse than 2020.

Another reason which affected turnover was that of energy cost, where despite the Maltese government subsidizing these costs in Malta, the impact of inflation was still felt in other countries, resulting into a decrease in spending power. Travel restrictions, low tourism and unfair or increased competition also affected turnover in small businesses.

Cost of service increased which meant a decrease in profit. Businesses showed that 39% made less profit than 2020, with 32% remaining the same, and only 29% making more profit.

38% of the respondents remained neutral on whether they were satisfied with the overall business sales in the first few weeks of 2022. 20% and 15% responded being dissatisfied and very dissatisfied respectively. Despite this, an overwhelming 44% of the respondents believe that 2022 will have better results than 2021, factoring in better control of the pandemic and increased consumer confidence.

When asked about the major challenges they are expected to face as a business, 16% of respondents are concerned with the general increasing costs, and 14% expect Covid-19 recovery challenged. Surprisingly, a 10% of respondents are worried about the uncertainty which the general election brings about.

Among the proposals which the SME Chamber put forth was the removal of SISA/Excise Tax, which refers to the hidden tax aside from VAT, found in every-day consumer goods, such as water, non-alcoholic beverages, shampoo, hair products, personal care products and cosmetics. This would enable small businesses to recover more progressively, eventually reaching the pre-pandemic benchmark of 2019. The use of these products has increased during the pandemic, due to a greater need for cleanliness and personal upkeep.

The SME Chamber is also proposing a five-day quarantine for positive cases, following by another 5 days of mask-wearing after quarantine, which would help businesses avoid losing a staggering number of employees due to long quarantine periods.

The facilitation of Third Country Nationals (TCN) employments was also proposed, to answer to the problem of a lack of human resources and a non-productive wage inflation.

Safety restrictions have brought about low sales and low tourism, which negatively impacted travel in Malta, an essential lifeline for the country. The SME Chamber proposed the lobbying at EU level to harmonize travel rules in the single EU area, an attempt to increase travel confidence.

The SME Chamber acknowledged the fact that businesses have had to close down, while others have been more successful, showing the volatility of businesses in a day-to-day basis. The overall turnout of the survey showed that improvements were still to be made.

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