As a council member of the Malta Chamber of SMEs, one of my key roles is to advocate for reforms that improve Malta’s business environment; a collective goal that stands to benefit our entire economy.
In addition to my role within the Chamber, being the CEO of a professional services firm classified as an SME gives me first-hand insight of the challenges faced by businesses of our size. In both my professional capacities, I engage in frequent discussions with fellow entrepreneurs who echo the same concerns, particularly regarding the uncertainties surrounding future investment decisions.
Government support and targeted investment in local businesses are critical to sustaining and enhancing economic growth. The recently published SME Barometer for Q2 2024 highlights a growing sense of unease within the business community. Specifically, 53% of local businesses reported uncertainty when planning investments for the coming year, a worrying trend that has persisted for at least the last 18 months. Such hesitancy, if left unaddressed, could undermine the growth potential of Malta’s economy.
What makes this situation particularly concerning is the fact that micro-enterprises and SMEs make up around 98% of Malta’s total business units. Given their overwhelming presence, their success – or lack thereof – has a profound impact on the country’s overall economic well-being. If a significant portion of these businesses are reluctant to invest in their growth, we are at risk of stagnation.
Given these circumstances, I took on a leading role in preparing and presenting key proposals on behalf of the Malta Chamber of SMEs for the upcoming 2025 budget. The proposals are centred around four strategic pillars, each designed to address the unique challenges and opportunities currently facing Malta’s economy, with the overarching aim of creating a stable, sustainable, and forward-thinking business environment.
53% of local businesses reported uncertainty when planning investments for the coming year
Incentivising investment
In the face of global economic uncertainties, incentivising investment has become a necessity for sustainable growth. As Malta continues its recovery from the COVID-19 pandemic and strives toward a more sustainable economy, targeted government investment can play a pivotal role. By modernising infrastructure and fostering green technologies, these investments will fortify Malta’s economic resilience, positioning the country to better weather future recessions. More importantly, it will pave the way for Malta to evolve into a competitive hub for high-value industries, ensuring long-term prosperity.
Supporting good business
The government should introduce incentives that foster growth, while allowing the private sector to take the lead in employment generation. Additionally, the government should avoid competing with the private sector for employment, but rather complement efforts to boost employment.
The proposals put forward under Pillars 1 and 2 include:
• Lowering corporate income tax rates from 35% to 25% (on the first €250,000 in profits and subject to having a clean compliance certificate); this would incentivise investment and non-compliant businesses to get in line with their reporting and tax obligations. enabling a more level playing field for local businesses;
• Reforming the COLA mechanism to provide fairer wage adjustments for lower-income earners while ensuring that employers are not unduly burdened;
• Introducing business turnaround schemes to help companies restructure, diversify and recover from financial difficulties;
• Launching a tax arrears financing programme to enable struggling businesses to settle outstanding tax dues and seeking to improve tax collections;
• Extending ‘tax in danger’ limits and introducing a VAT domestic reverse charge for B2B transactions between locally VAT-registered entities; this would improve business cash flow, simplify tax compliance and reduce the administrative burden on both businesses and the tax authorities;
• Encouraging energy investments, with a focus on exploring new technologies and promoting renewable energy to meet sustainability goals;
• Promoting good governance in public procurement by ensuring a fair, transparent, and competitive system;
• Introducing an export guarantee scheme to incentivise exports, and support international trade.
Supporting self-employed and micro-enterprises
According to data issued by the National Statistics Office, in 2023 there were 136,881 registered micro-enterprises employing between 0-9 persons, accounting for 97.4% of the total registered business units. Of these, 80,090 were registered as sole ownerships/partnerships, accounting for 58.5% of micro-enterprises and 56.9% of total registered business units. This sector forms the backbone of the Maltese economy, yet such businesses are typically forgotten.
The proposals focus on delivering targeted support to this vital sector, such as:
• Establishing a dedicated parliamentary secretary for self-employed and micro-businesses to ensure their interests are represented at the highest levels;
• Enhancing grant schemes and providing coaching support;
• Expanding the MicroInvest threshold to encourage further reinvestment;
• Making NI contributions tax deductable and extending tax brackets for self-employed individuals.
Anticipating the future of work
The digital transformation is rapidly changing the nature of work, and Malta must proactively adapt to these shifts. While the digital landscape has been acknowledged in various policies, there remains a gap in aligning efforts to prepare for the future of work.
Our proposals call for:
• The establishment of a national taskforce to devise a long-term strategy for the future of work;
• Incentivising business digitalisation by providing grants and tax incentives;
• Introducing ‘Making Tax Digital’ in Malta;
• Offering grants to businesses attending international conferences.
For Malta’s economy to thrive, we need to create a supportive environment for our SMEs and micro-businesses. The proposals put forward are designed to address the core challenges facing Maltese businesses today and ensure that the country is well-prepared for tomorrow’s opportunities.
The government can signal its commitment to ensuring that the businesses forming the backbone of Malta’s economy are equipped to navigate immediate challenges and challenges of the future.
It is vital that all stakeholders work collaboratively to address the issues highlighted in the Chamber of SMEs’ ‘SME Barometer’. Only by doing so can we build a business climate that fosters confidence, promotes investment, and secures a prosperous future for Malta.
Beppe Muscat is CEO of NM Group (Malta) Ltd. and a council member of the Malta Chamber of SMEs.