Budget friendly to SMEs, self-employed and R&D

By David Lindsay

Budget 2003 has been deemed as friendly to business in general and particularly to Malta’s small to medium size enterprises, which make up the backbone of Malta’s economy.

This year’s measures designed for SMEs follow along the same lines as similar initiatives introduced last year. These included income tax exemption on profits between 2002 and 2004 when profits are reinvested in new projects, in the purchase of new machinery and other investments geared toward tangible business development; 30-day VAT refunds for small enterprises and other similar measures for enterprises adopting new technologies.

While the measures last year were aimed at SMEs employing an average of five workers and not exceeding an annual turnover of Lm100,000, following recommendations discussed within the Malta Council for Economic and Social Development, these incentives have been retained and have in fact been expanded to include all such enterprises whose turnover does not exceed Lm250,000.

The self-employed are also to benefit from an Assistance Scheme that will give them full access to information systems that will facilitate their communications with government departments and other public organisations. The Scheme is to provide for exemptions of fees and free training on the use of these systems. The initiative is expected to provide further incentive for the self-employed to make wider use of the facilities in order to cut down on red tape.

Research and development is also being encouraged, with enterprises now being able to declare, for income tax purposes, expenditure incurred on R&D aimed at creating and improving products, processing materials and other equipment. Enterprises falling under this category will now be able to increase the deduction on such costs by 20 per cent.

This increase will be pushed up to 50 per cent and, as such, Dalli explains, for every expenditure of Lm100 they would have a deduction of Lm150 from their taxable income.

As in over the last four years, the government has once again adjusted the import duty rates on goods imported from Europe, which it deemed necessary following what Dalli describes as a "haphazard change in the indirect taxation system in our country."

The initiative is expected to produce reductions in some import duties on products while it may also increase those on other products to a certain extent.

Dalli also explained how, as soon as Malta becomes a full member of the European Union, VAT on taxable products imported in Malta from Member States will no longer be collected at the importation stage as is currently the practice, while in the case of goods imported from third countries the current procedure will be retained.

In the case of taxable products for sale, VAT will be collected and will be passed to the Department in the same tax period when the sale takes place. All this, Dalli explains, will be of direct benefit for those who import from the European Union as we shall cut down on procedural form-filling and on the need for Customs to examine imported goods. In addition to this, the importer will improve his cash flow and his administrative costs will be reduced.