GRTU warns of VAT hike repercussions

An increase in VAT could drive several retailers out of business, the GRTU, Association of General Retailers and Traders warned yesterday, as operators wait with bated breath for the budget.

"With the deficit, the pension problems and the unsustainability of the health sector, the last thing we need is a fiscal punishment," GRTU director general Vince Farrugia told The Times.

Although Finance Minister John Dalli has not committed himself, an increase of three percentage points in VAT - or a consumption tax of that amount - is widely expected in the November 24 budget as the government tries to fill the black hole of its finances.

At a "retreat" for the members of the Malta Council for Economic and Social Development last weekend, the GRTU fiercely opposed a hike in VAT.

An increase of three percentage points in VAT would automatically absorb Lm25 million to Lm30 million from the money available for consumption, Mr Farrugia said.

Retailers were worried and were constantly calling the GRTU to check whether an increase was really on the cards. "We are having five meetings a week with different sectors of retailing, and each is complaining about their cash flow. They simply can't take any more punishment," Mr Farrugia warned.

Mr Farrugia challenged the government to issue an economic impact assessment. He said even an increase of one percentage point in VAT could bring reductions of up to three or four per cent in consumption.

A higher VAT rate would mean that customers might switch to cheaper products or limit themselves to bare necessities. The economy could not afford this as it has for several years kept prices low at the expense of profitability.

One had to keep in mind that when VAT was introduced in 1995, it was counterbalanced by a reduction in levies and duties, Mr Farrugia said.

"We have never had a threat of an increase in consumption tax the way we do now," Mr Farrugia said, adding that sellers of white goods and jewellery would feel the pinch most.

Retailers have adopted a wait and see attitude and are being cautious not to overstock. The problem is exacerbated by poor tourism prospects.

"The commercial sector is in the doldrums. We know what business is like out there so we know what we're talking about," Mr Farrugia said.

The extent of the cash flow problems in the country can be seen from the number of garnishee orders filed in the courts, he added.

Figures cited by the National Statistics Office and the Central Bank show worrying trends. The CBM's forecast for real GDP growth, which has been cut to a range of 1 to 1.3 per cent from the previous range of 3.1 to 3.7 per cent, was enough reason for worry, Mr Farrugia said.

He lambasted the government for "doing its utmost" not to upset certain sectors at the expense of the consumer.

It was ironic, he said, that while the drydocks' debts had been written off, retailers were regularly fined heavily for delays or for filing erroneous returns.

"We really need a lively debate in the country to see which source we can raise revenue from. Why does the government always have to resort to income tax, national insurance and VAT," he asked.