Update yourself or sink

Tony Abela, Parliamentary Secretary in the Ministry of Finance and Economic Affairs, addresses the recent Deloitte & Touche conference ‘Coping with Change – Update Yourself or Sink’. In his speech, Abela touches upon the need to improve and transform for the challenges ahead and identifies what the accountancy profession requires for Malta’s new economic environment

People change because they recognise the need to improve and transform themselves in order to be able to cope with the challenges the future will certainly bring with it. Recognising the challenges that lay ahead is an essential prerequisite to trigger off any change process. However, one needs also the courage to embark on the needed changes. Such courage stems from the realisation that postponing the change process will only result in more painful adjustments in the future when the once distant ‘challenges ahead’ become the reality of the present. Unfortunately, there are some in Malta who often chose to ignore the challenges ahead and instead use the ‘fear of change’ in order to reap political advantage.
Without dwelling much on the accountancy profession itself however I must point out that the position of the accountant has changed radically. With Malta’s entry into the EU, it logically follows that clients shall require further help and assistance more than the basics which were meted out up to some months ago. This new economic environment requires:
1. That each and every accountant has in his stride to decide whether he is to limit the exercise of his profession to what he has done today and be eventy lost by the wayside or else organise himself together with others in order to meet the new challanges ahead.
2. That each and every accountancy firm, in view of the recent legal changes, can now incorporte within its ranks, those persons which it deems necessary [ having a university degree or its equivalent] as partners [but with less than a 50% stake] awhom it deems to be necessary as to provide its clients with a greater overall service than it has made today.
3. Each firm has to improve and widen its work base without losing its primary mission statment.
We witnessed this behaviour on various occasions; namely with the introduction of VAT and EU membership. The latest instance is the Government’s Budget for 2004. The budget that was presented last Monday by the Minister of Finance takes courageous steps in order to achieve a sound long-term public finance position. Measures were also taken with a view of maintaining an adequate safety net for the neediest in our economic system.
The 2004 Budget announced the allocation of Lm12 million to the agricultural sector. Lm40 million will be invested in the development of factory space over the next four years and a further Lm10 million will be invested in embellishment projects to increase Malta’s attractiveness for the local population and tourists alike.
We have committed ourselves to help small businesses gain further access to finance and have drawn up a research and development programme to create and develop Malta’s capacity for research and innovation.
During the budget speech Government has also announced measures to combat tax evasion. We have introduced more rigorous controls on the distribution of medicines and committed ourselves to rationalise social services in order to increase efficiency in their use and reduce, if not eliminate, their abuse.
Perhaps the increase of the standard VAT rate from 15% to 18% is the most hotly debated issue at this time. This was an important decision to take. We have taken this step in order to safeguard the long-term sustainability of our health care system. In order not to hamper local consumption and safeguard the local standard of living we will also be compensating adequately all workers and pensioners for this increase. It should also be noted that this increase should not in any way affect the price of food and medicines and neither tourism related services.
This year saw also other amendments to VAT legislation. VAT in the EU is based on the principle that it should be paid where the commodity to which it applies is consumed. The necessary amendments to the VAT act to reflect this in our legislation were passed last October.
It must be stressed that those who only cater for the local sector and who import or export from or to countries outside the EU will still go on with the present arrangements regarding VAT.
However, as from EU accession there will be the removal of fiscal borders between Malta and other member states. Member states will have to open their doors to all Maltese products. On the other hand, products from the other member states will enter Malta in the same way - without any Customs formalities. This means that our businesses will have the opportunity to trade freely with 24 other member states without the need for any quotas or other restrictions that Malta used to have before joining the EU.
As from accession Maltese importers, who up till now have to pay VAT at Customs to release their consignments of goods coming from the EU, will enjoy a great cash flow benefit. VAT will no longer be paid at Customs but will be paid to the VAT department after the product is sold to the consumer. This does not mean that the consignments received from other member states will not be reported. They still have to be accounted for in the next VAT return as soon as these are received, but the transaction will be neutral, and no VAT payment is due when an acquisition of goods is made from a member state of the EU. There will be controls to ensure that the VAT is passed to the department after the product is sold.
This will definitely bring about more responsibility on traders, directors of companies, on the accountancy profession and tax practitioners in general. We need to educate the traders regarding the importance of both the keeping correct records of transactions and of paying all the VAT due. The VAT department will be equipped with the necessary IT tools and through the so called VIES System will exchange information with other member states on all intra-community acquisitions and supplies. Each exempt intra-community supply to a Maltese trader will have to be reported by the foreign supplier to his tax administration, and in turn the tax administration will inform the Maltese VAT department of the transactions made by local traders thus effectively leading to controls on transaction reporting.
Another important change is the introduction of refunds of VAT incurred in other member states by local traders. According to the European Commission’s 8th Directive, Maltese traders who incur VAT in any other member state on, for example, services received in other member states connected to their trading activity, may as from accession claim refund of such VAT incurred. This is another incentive for trade expansion within the EU. It is one way by which the EU encourages trade between member states. Local traders should seek to take all such opportunities immediately these are made available to them.
The VAT department will be launching an educational campaign on these changes to help everyone understand the new intra-community regime.
The developments occurring in Malta over recent years were the result of a vision for a more prosperous Maltese Nation. We believe that we have taken and are still taking the right decisions in order to preserve the long-term well being of all the Maltese – with no exceptions: from the eldest to the youngest and from the weakest to the strongest.