VAT should be cut down to 15% as profitability worsened for businesses in 2023 – Chamber of SMEs

Last Updated on Thursday, 1 February, 2024 at 12:00 pm by Andre Camilleri

The Chamber of SMEs has proposed that Value Added Tax (VAT) should be reduced from its current level of 18% to 15%, arguing that this adjustment should ensure price stabilization while maintaining revenue, appeasing both consumers and businesses in the process.

Other recommendations include lowering tax for businesses to ensure a level playing field amongst businesses operating in the Maltese islands and reforming Malta’s public procurement infrastructure “to ensure transparency and good governance at a national level.”

These recommendations were put forward by the Malta Chamber of SMEs as they published their Business Performance Survey for 2023 (also known as the SME Barometer).

One of the main takeaways from this research was that local businesses generally experienced larger turnover during 2023, in comparison to 2022. However, overall profits simultaneously decreased, resulting in a majority of businesses (40%) becoming less profitable over the last calendar year. Profitability remained the same for a third of businesses (34%) and only improved for around a quarter of them (26%).

“Businesses are working harder to earn less,” Chamber CEO Abigail Agius Mamo said.

In this respect, the President of the Chamber of SMEs, Paul Abela highlighted the importance of these findings. He described how businesses plan out their investments with the aim of earning profits, not to break even or lose money. He said that the theme of uncertainty has grown stronger amongst local businesses.

From those businesses that experienced reduced profits over 2023, 62% of respondents labelled customers’ decreased spending power as the main reason behind this. Other notably listed main reasons were increased competition (44%), inflation (37%), illicit trading/unfair competition (31%), increase in business costs (30%), and global uncertainty (28%).

Increasing inflation topped survey results as the top issue businesses are facing, as well as the top issue they believe requires government action to combat. The other main issue that businesses are currently facing is a problem in employee shortage. These were followed by excessive competition, unfair competition, transport costs, and traffic congestion. Chamber CEO Agius Mamo said that in relation to transport costs, freight costs are on the rise due to the recent European policy to tax emissions.

These results indicate that Maltese businesses are growing more uncompetitive, members of the Chamber observed. They said that this may later affect exportation costs.

The issue of unfair competition is one of the main issues impacting the country, according to Chamber President Paul Abela. He described that the unfair competition existing in the local economy is rooted in how foreign businesses are better incentivised to set up in the Maltese islands than locals, since they have lesser rates of costs. He also said that it is “crucial” for policies to be introduced to better protect Maltese as some foreign businesses continue to disobey rules. He also called for better law enforcement in this regard.

When asked to label just two issues that businesses are facing which they hope could be countered by government intervention, four issues were prominent in the survey results: increase in inflation (35%), level of corruption (34%), lack of good governance (34%), and overpopulation (29%). Other noteworthy responses in this category were ease of doing business (17%), safeguarding quality of life (16%), and consumer buying power (15%).

Ending 2023, 72% of businesses during Q4 believe that Malta is going in the wrong direction. This question was asked at the end of each quarter. At the end of Q2, 64% stated that the country was heading in the wrong direction. This increased to a staggering 80% the following quarter (Q3), before decreasing by 8% to end the year.

Mixed results were received on business performance vis-à-vis business sales over this festive season in comparison to that of 2022. 37% of respondents said that the 2023 festive season returned less sales than that of 2022. Meanwhile, 36% said it was the same and the remaining 27% recorded increased sales.

55% of businesses are unsure whether 2024 will be a good time to invest. Similarly, expectations for 2024 were almost split evenly – 36% are expecting more of the same, 34% believe 2024 will be better, and 31% were more pessimistic about this year.

During the Chamber’s press conference, deputy president Philip Fenech noted the “copycat syndrome” existing in the local economy, i.e., local businessmen tend to copy each others’ strategies – if one decided to open a restaurant, others will follow suit. Fenech said that the country’s oversaturated market leaves less room for this attitude to thrive.

Relating to the market trending towards oversaturation, Agius Mamo said that the country must develop its economic model to make it more open to economic niches.

The chamber said that 2023 was the first year since the COVID-19 pandemic broke out in which the economic repercussions from the coronavirus breakout did not impact the local economy.

Concluding this press conference, Abela referenced the government’s Stability Scheme which began today. He said that the Chamber of SMEs was not consulted before its announcement, though he expects this to lead to the reduction of COLA in the future, especially since COLA reached an all-time high over the past year.

This survey had 283 respondents and holds a 5% margin of error. From those that responded, nearly half (46.4%) were micro enterprises of 1-9 employees.

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