No room for negotiation on this issue – John Dalli

by David Kelleher

With pressures mounting on employers to make good for deductions in salaries when the tax on fringe benefits comes into effect next month, there is little hope that the situation will change.
The Minister of Finance, John Dalli will be meeting representatives of the constituted bodies earlier next week, however the meeting is not expected to make much of a difference.
Contacted yesterday, Mr Dalli told The Malta Business Weekly that after he rebutted in Parliament a statement issued by five Constituted bodies, the latter called for a meeting to discuss further the issue.
“I told the constituted bodies that I will be abroad but will meet them when I return. I do not know what they are going to ask, however this is not an issue that can be nego-
tiated. The legal notice is there and the decision has been taken. There is no room for negotiation,” Mr Dalli said yesterday afternoon.
The legal notice that will effectively enforce the application of the new tax guidelines on fringe benefits is expected to be published next week. Government sources said the legal notice would stay as it is, despite next week’s meeting with the Minister.
Speaking to The Malta Business Weekly, the president of the Malta Employers Association, Alfred Mallia Milanes, said there was growing pressure from employees and executives on their employers to make good for any deductions in their salary.
“How can the employer be expected to make good for any new taxes. It does not make sense and is unfair on the employer. After all, the tax on fringe benefits was not introduced by them but by the government,” Mr Mallia Milanes said.
He added that one had to be very careful of the repercussions employers would face if they increased salaries to make up for the shortfall.
“If executives are given salary increases to make good for the inclusion of a new tax then they are opening the door to claims for increases to cover up other taxes or increases in national insurance. This can never be accepted. Such a move would have an inflationary effect,” Mr Mallia Milanes said.
Asked what the MEA’s stand would be, Mr Mallia Milanes said the Constituted bodies were acting together, as they did last week when they issued a joint statement.
Well-informed sources said yesterday that the constituted bodies held a meeting behind closed doors to discuss what strategy to take. They added that it was possible that further action could be taken if the government refused to change its “draconian” stand.
A number of executives told The Malta Business Weekly that the tax was unfair because the bulk would be paid by the middle management executive and not by the company heads.
“They can afford to be taxed on fringe benefits, but in our case the added benefit is not even worth being included,” one executive said.
His concern was voiced by others who said that last year they had already suffered cuts in their salary. Now, come April they were going to get even less.
Last week, the five constituted bodies called for a more gradual implementation and enforcement with adequate notice after the regulations are agreed upon through proper consultation.
They said that “in simple terms this means that government is effectively imposing additional tax burdens on employees and thereby increasing the costs of operation to employers”.
While reiterating their firm stand in favour of fiscal morality and having carefully reviewed the approved guidelines, the organisations said they were duty bound to highlight that these measures will certainly lead to pressure on employers for increases in salaries which can only have inflationary effects on the country’s economy. Indeed, the draconian approach of these new tax rules will have substantial negative repercussions on the performance of the business sector and the economy at large.
On Tuesday, the outgoing president of the MEA, Victor Scicluna, said the fringe benefits would adversely affect the people the country needs to spearhead the economy.
“This taxation will demotivate those people who are the very ones who need to be leading their followers. Is this the corrective measure called for by the situation?” Mr Scicluna asked.
Replying to the constituted bodies’ statement, Mr Dalli said that although he was pleased to note their strong stand on fiscal morality, it was important for them to understand that the changes were made to even out the situation.