The rate of VAT should be reduced from 18 to 15 per cent on all goods and services to effectively tackle inflation, the Malta Chamber of Small and Medium Businesses said on Thursday.
Chamber chief executive Abigail Mamo said a survey among almost 300 businesses revealed that inflation was their topmost concern.
A reduction of the VAT rate would ensure price stability while maintaining revenue, she argued. Reducing tax for businesses would also ensure a level playing field among businesses operating in Malta.
The comments were made on the same day as a government agreement with importers and retailers to reduce the recommended retail prices of 400 food items by 15% came into force. The government has hailed the deal as key for price stability.
Duties on essential items are 'a hidden tax'
The chamber on Thursday also demanded the removal of duties on consumer goods that are in frequent use, such as water, non-alcoholic beverages, shampoo and hair products, personal care, make-up, shaving products, deodorants, wipes and body soaps.
Those products are not covered by the government's price agreement and those duties constituted a “hidden tax”, the chamber said.
A shortage of suitable employees was also high on the list of concerns for businesses, the chamber said.
It suggested that the validity of work permits for foreign employees earning more than €25,000 should be extended from one year to two.
40% reported drop in profits last year
The quarterly survey found that more than a quarter of businesses reported a drop in sales last year while 40 per cent said their profitability had slumped.
According to the survey, almost 30 per cent said their sales had remained unchanged while the rest reported sales growth of between 10 and 30 per cent.
The survey was conducted among almost 300 businesses. Almost half the enterprises who responded employed up to nine employees, a quarter employed between 10 and 49 workers, 15 per cent had over 50 employees while 12 per cent had no employees.
The majority of respondents were in retail, importers, distribution and wholesale. Others were in the transport sector, manufacturing, construction, machinery and production, tourism, food and beverage, ICT, education and training and entertainment and marketing.
When asked what they thought had led to a decrease in sales, most businesses mentioned a drop in customer spending power, increased competition, inflation, illicit trading and global uncertainty. They also complained that construction and infrastructural work in their area had negatively affected their business.
Bank charges, high transport costs
Asked what was leading to price increases, businesses mentioned bank charges and interest rates, an increase in overhead and transport costs as well as salary costs.
Replying to a question on how their business fared over the festive period, 37 per cent said their sales had decreased, 36 per cent said it had not changed while 27 per cent said it had increased.
Businesses said inflation, employee shortages and excessive competition were the three most pressing issues their businesses were facing. They also mentioned corruption and lack of good governance, unfair competition, transportation costs, lower client demand and traffic congestion as other issues.
Almost three-quarters of businesses believed the country was moving in the wrong direction. However, there was an eight per cent decrease in the number of businesses that gave this reply when compared to the previous quarter. More than half said they were unsure whether the next 12 months were good for investment while more than a quarter said it was not.
As for future prospects, more than 30 per cent said 2024 will be worse than last year. The rest were split between those who said it would not change from last year and those who said this year would be better.
The study, conducted by research firm MISCO, showed that businesses were absorbing inflation where they could to ensure that the level of sales was maintained. Employee wages together with the increase in costs of products coming from abroad continued to persist.
Chamber CEO Abigail Mamo said the government needed to seriously address issues of unfair competition and governance. Although more efforts were being made to increase sales turnover, overall profits continued to decrease.
There was uncertainty among businesses when considering investing further.
Almost all tourism operators who responded to the online survey expressed concern about the lack of competitiveness and attractiveness of Malta in tourism.
Mamo called on the government to execute a medium- to long-term economic plan and roll out support for businesses to address insularity that was affecting competitiveness. She also called for a reform in Malta’s public procurement infrastructure to ensure transparency and good governance at a national level.