22 - 28 March 2001

Promoting the Business Promotion Act

The criticism levelled at the government over the past three months over the introduction of taxation on fringe benefits and the 15 per cent tax on Collective Investment Schemes has cast serious doubts on the direction the present administration is taking.
The government has promised that it is committed to reducing government expenditure and to enforce tax collection, effectively cutting down on tax evasion and social welfare abuses. Even though the government has stated that its plans are working, there has been little tangible proof of this.
The results of the local council elections have cast further doubts on
the government’s ability to govern and given the Labour Party much
more room to manoeuvre and set out its electoral campaign for the next elections.
It is, however, surprising that the government has failed to hit back at its critics by making use of and promoting the new Business Promotion Act, an act that in its entirety gives a lot more scope to local businesses in Malta. While the constituted bodies, in particular the Federation of Industry, complain that foreign direct investment has not come to Malta, the government has an excellent vehicle to spur the economy and create added value to investment in Malta on a local level.
The Business Promotion Act amends the Industrial Development Act of 1998 and introduces greater scope and flexibility to the incentives available for the promotion of business and covers a wider range of qualifying sectors and activities than before.
The revised IDA now encompasses other manufacturing activities such as electronic and telecommunications equipment, software development, rubber and plastic items, pharmaceuticals and medicinals, jewellery and related articles and much more.
Through the BPA, the government has created a scenario that could be of benefit to local companies and not only for foreign companies using Malta to manufacture and export products. This is one of the main changes to the IDA. Fiscal incentives are no longer restricted to exporting companies.
Apart from the tax incentives for qualifying companies carrying out specific activities, such as reduced rates of income tax, the new BPA also allows investment tax credits. This means that tax payable can be reduced or eliminated by investment tax credits. According to the Act, the interaction of these two incentives would normally result in minimal or no taxes being paid for a number of years.
The BPA goes one step further. Research and development expenditure is for tax purposes deducted at 20 per cent, the tax on profits re-invested in projects approved by the Malta Development Corporation is reduced by 19.25 per cent. These two incentives can help small and medium-
sized companies that are among the new areas are eligible for such
incentives.
Apart from the tax incentives, local companies stand to benefit from better rates for industrial buildings and companies may benefit from loans up to 75 per cent of the qualifying expenditure. One extremely interesting incentive is that the creation of a new job may entitle a company to write off a percentage of the wage costs of the new job, as a further tax deduction. Undoubtedly, this incentive can only help to encourage businesses planning to expand their activities to increase their staff complement knowing that they stand to benefit from employing more people.
Yet how many businesses are aware of these incentives? How many companies have asked for more information about the BPA? But what is more worrying is that the government, apart from announcing the new legislation, has done very little to promote or use the Act to show both the Opposition and the business community that it is, in fact, doing something to get the local economy back on its feet.
If it were not for the various consultancy agencies in Malta and the MDC, the BPA would simply be another piece of legislation. The BPA has received very little criticism – which can only mean that there is something beneficial in it – and this should give the government even more reason to ensure that the BPA is given as wide coverage as possible.
In a country that has to turn every piece of legislation, every new idea and every decision into a political issue, it is a relief that the political parties at least agree that the BPA is beneficial to businesses. If the government has done something positive in the first two years in government, its the Business Promotion Act. Unfortunately, it does not seem to have realised what a positive tool it has with which to counter its critics.