NEWS | Wednesday, 05 March 2008

New PN government would not raise VAT – Tonio Fenech

Charlot Zahra
Parliamentary Secretary in the Finance Ministry Tonio Fenech pledged that a new Nationalist Government would not raise Value Added Tax (VAT) from the present 18% rate.
Speaking during a wide-ranging interview with Business Today Fenech said: “I believe that our electoral programme is clear. Not only we are not proposing to increase VAT, but we are saying that there are a number of areas where we want to negotiate with the EU lower tax rates.” Fenech explained that the standard tax rate at 18% and the lower rate at 5% were at the discretion of each EU Member State, although the standard rate cannot be less than 15%
“However a Member State cannot decide the items that can be introduced under the lower rate on its own. It has to be permitted either through under the Treaty which regulates VAT legislation in the EU or through a special exemption,” he told Business Today.
Fenech said that currently there was an EU-wide discussion which was looking at the various reduced rates that different Member States had obtained through the years “to create a more uniform scenario”.
The Maltese Government, he said, was insisting that on food and medicine, the present rate of 0% should be maintained. “This should have ended by the end of 2010, however it has already been extended to 2011.
“In these discussions, Malta is insisting that the derogation should be kept permanently and we will not accept that it is not if there is at least one Member State which still has such an exemption,” Fenech told Business Today.
“On other things, such as restaurant services and other sectors, Malta is asking to reduce the VAT rate to 5%. Therefore in our electoral programme we are speaking of areas where we want to reduce VAT rather than increasing it.
“It is one of those things that the Opposition always claims that the Government intends to do without telling us what its plans are. Maybe the Labour Party has the intention to raise VAT rates itself?” Fenech told Business Today.
Asked whether the Government believed that the time was ripe for a windfall tax on banks’ profits in view of their massive profits during the last financial year (€216.5 million), Fenech excluded it outright.
“The government does not believe in this type of taxation on an economic level. While it is a huge temptation that when you see certain economic sectors that are doing certain profits, then the Government should wake up one day take a slice of that pie.
“This would send the wrong message abroad, especially to the financial services sector, which we are targeting for further growth from the 6,000 to 7,000 jobs there are presently to 10,000 jobs by 2015,” Fenech told Business Today.
The Government was forecasting a growth in the contribution of this sector to the Maltese economy from 12% to 25%. “When you start playing cowboy with the sectors which are growing by imposing further taxation on those sectors that are growing, the message would be for them to leave Malta.
“The fact that they making more profits also means that Government is earning more revenue as well since we take 35% of all the profits that they make,” he said.

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