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 Six weeks after the election results and there
is a feeling of anticlimax among small and medium sized enterprises
that hoped for reforms to improve their lot.Granted that the winning
party has stretched its list of promises to cover over 350 items,
some of which may take years to flourish while others can happen
soon. One of the items hitting the newsstands is the training aid
framework launched by the Employment and Training Corporation. This
was announced recently at a seminar for Gozitan businessmen. What is
new here?We heard politicians promising a long list of structured
aid programmes in the past most of which failed to reach their goals
mainly due to the excessive barrage of bureaucratic rules. This time
we are putting our money where our mouth is and there is an
allocation of €13 million spread over a seven year period, which, as
can be expected, is partly financed under the EU’s Structural funds.
Is this what we have been waiting?The answer is definitely in the
affirmative since the cry for assistance from beleaguered SME’s is
growing louder in intensity. Matters have been exacerbated by the
inordinate increases in fuel and the electricity surcharge amidst a
domestic run to dip into an ever shrinking cash lake.
The ETC scheme did not arrive a moment too soon.
It is designed to encourage job creation with direct aid to
employers who employ and train existing or new employees. Has it
worked in the past? It seems so since the year ending September 2008
training programmes were availed of by 804 workers with a range of
course subjects starting from office skills to basic skills.Since
the old Socialist days we all remember the battle cry from
politicians to woo mega industries. In the mid seventies the slogan
was the wonder Chinese designed companies employing a thousand. Now
we have the drums rumbling high on the SmartCity mega project. The
kudos and admiration is all for the big and mighty. SME’s can wait
while the multimillion dollar projects take precedence in the hall
of fame.Yet the time to reconsider the small and medium sized is the
next item on the EU agenda. Brussels is piloting a Small Business
Act. Triumphantly Minister Tonio Fenech has embraced the law
agreeing that about 95% of local businesses are medium or micro
enterprises.
A sense of déjà vu sets in when one is reminded that the EU aims to
reduce the administrative burden and cut red tape. Have we really
cut deep in our ingrained bureaucracy or did this behemoth grow back
its severed tentacles to arise from our feeble pruning.
How many times we were promised that SME’s will
be exempted from VAT form filling and granted a reduced and simple
corporate tax rate that will encourage better disclosure and combat
evasion. Instead the recent tax amendments to the new sources of
income has exacerbated matters particularly the desire by the
exchequer to collect data on small traders involved in the
plastering, electrical, plumbing or other trades even remotely
connected with immovable property. To be more specific one reads in
a recent legal notice that when any person is registered in terms of
article 48(4 a) of the Act and this for the purpose of claiming his
or her right of a tax refund then new rules apply. These rules are
complex but their main aim is to segregate the allocation of profits
previously allocated in the Maltese Tax and/or its Foreign income
account from any distribution so as to ensure that it equates to the
correct percentage entitlement. There are further twists to the new
rules which shall not add much joy to entrepreneurs trying to cope
with more pressing production, marketing and cash flow issues.
 Starting from 1 January of last year there shall
be born to the stable of tax accounts two new thoroughbreds. These
shall be christened the final tax account and the immovable property
account. To add to the brew of alien concepts one now needs to
segregate any profits derived up to 31 December 2010 by an existing
shop owner which would have been allocated to the pre-2007 ‘foreign
income account’ had such profits been brought to charge in the year
of assessment 2007.Taxpayers can thank heavens that they can opt to
skip all this misery if they elect to be treated as a new ‘company’,
one registered after 1 January 2007. So one may ask why all this
computational chore not been left to start as from next year thus
giving time to the hapless SME’s to gain time and confidence with
the labyrinth system.
The answer is not so heart warming as in fact the five chapters are
now all encompassing. Expect fire and brimstone to be evoked if
profit allocations get into a twist. The order of allocating
distributable profits now preempts the Final tax account and than
the immovable tax account, next marshes the foreign income account
and finally but not least the repository untaxed account.
For those who ask what the immovable tax account would encompass the
official definition says it is the taxed account to which
distributable profits which have suffered tax and which are not
allocated to the final tax account calculated in such a manner as
may be prescribed. If one gets further baffled and wishes to be
enlightened as to what does the ‘Final’ tax account holds in store
then the answer is not so simple. Final means income which has been
subject to 15% FWT together with any rents subject to the 5% FWT
(Housing Authority schemes) alongside with - ITA/ITMA LN49 of 2005-
Sale of Agricultural Produce rules, 2005 with income arising under -
ITA-Article 5A-profits subject to 12% FWT (immovable property), any
investment allowances, exempted income and finally any income
relieved by tax credits.Have a gasp of air before you choke and the
hackneyed advice not to burden small enterprises with rigid
regulations sounds hollow. I wonder how GRTU has not caught up with
this law. One expects them to voice their concern at least to apply
for a dispensation not to apply the law retrospectively. So moving
on with the subject of helping start-ups we can look around us and
compare the dire position of SME’s in Italy struggling within its
beleaguered economy.Following the election of the centre-right party
led by the ebullient Berlusconi we read in The Economist that a lot
of water has run under his bridge. Will he be brandishing his magic
wand to evoke the first miracle of Italian medium enterprises which
was evident in the early 1950’s?
 That epoch gave birth to the golden era of an industrial boom that
brought prosperity to the country’s northern and central regions.
Family-owned firms developed capital-intensive steel, automobile,
tire, and chemical industries, among others. Entrepreneurs focused
on textiles, machinery, food processing and the State built the
massive infrastructure of transportation and energy.During the
1980s, Italy enjoyed its second economic miracle. There was a drive
to kick-start Italy’s export-driven economy. Small and medium sized
companies producing clothing, leather products, shoes, textiles,
furniture, jewellery, and machine tools for export, led the boom. By
the early 2000s, inflation and social tension were escalating.
Violent protests erupted as trade unions and university students
demanded more benefits from the political establishment.
The parallel with Italy’s woes is compelling. In our case medium
sized entities are feeling the chill of the oncoming global
recession. Once assisted they can maintain their existence and even
possibly add marginally to their number of employees. They need
proactive help and not rhetoric alongside unfriendly banks asking
for collateral.This looks like a paradox without a solution. On the
surface last year the local economy was booming thanks to increased
productivity, more tourists and a feel good factor. But this façade
of prosperity hid the truth of a weak macro-economy. Like Italy we
need to roll up our sleeves and greet start-ups. The sad truth is
that very slowly our internal inflation and labour costs will soar
due to external factors and redundancies will follow. We must watch
out for upstarts and weed out our garden.
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