Budget: Micro Business Measures

Micro businesses are still an important part of the Maltese economy. Malta must keep incentivising this sector as Malta cannot afford to become wholly dependent on large businesses. The risk would be too great if the country focuses solely on just a few large businesses.

The national budget read on 17 October 2017 by Minister for Finance Prof Edward Scicluna prima facie attempts to address this. Indeed, it apparently encourages young people to opt for self-employment. Through one of its measures the government has recognised that Start-ups face unnecessary administrative burdens. The exemption from audit is a step in the right direction. Whether its implementation will be simply paying lip service to the issue or actually striving for its effectiveness and success still remains to be seen. In the past we saw a similar exemption for Small business but this was executed only in the companies act and was not mirrored in the income tax act. Presumably, Professor Scicluna is beyond these deceptive tactics and following a true full implementation, all Small businesses will be exempted.


The removal of the eco contribution was a positive measure. However, extension of SISA on new products is an old bureaucratic way for a government to generate income. It will also encourage alternative ways of buying on the internet and may damage even further the retail industry. It may also stimulate the black market and the importation of products through the freedom of movement of goods within the EU creating unfair competition. Government will have to increase anti-evasion measures which in themselves may be in breach of European community rules, defeating the main objectives of the EU internal market. Malta must determine how this measure will be interpreted by the relevant DG Internal Market. Furthermore, this measure will also have an impact on the cash flow of businesses, possibly putting them at a further disadvantage when compared to larger competitors.  Undoubtedly, selling prices will be effected by this measure.

The addition of SISA on certain construction items is a measure based on the assumption of the new trend for high-rises. It is also based on the premise that the construction industry had a good two-year period; but however, this latter assumption is a flawed one. The increase in sales during these last two years was also due to the first-time buyers’ measure implemented by this Government. It accelerated the sale of property to give it a boost. However, it did not increase the demand. Consequently, the industry may be slower in the coming years.  There is still the increased demand by foreigners, which is limited as well, when one looks at the risks of other industries. This measure is certainly a short term measure based on previous short term measures. It may also increase the property bubble that the country seems to be experiencing at the moment. Large construction companies will probably have positive results for the next three years, but this may not necessarily be the same scenario for smaller companies.

Banks and VAT

The statement that the small business formation time will be reduced by simply removing a trade licence is nothing more than a presumptuous statement. Today, start-ups face various difficulties, including registration for vat and opening of bank accounts. Apart from complaining publicly about banks’ operations, the government has done absolutely nothing to address this. Many argue that government cannot interfere with banks. This is largely incorrect; the government can facilitate through regulation and legislation. It can also direct the industry by using its shareholding in Bank of Valletta.

The VAT department seem to find it very difficult to use technology in order to monitor fraud. Instead, it is procrastinating in issuing VAT numbers as it does not have the appropriate tools to monitor what is going on.  This has not been addressed by government and it is one of the stumbling blocks in opening new businesses, particularly when it comes to foreign investment.

Succession Planning

The reduction of duty for transfer of business gives a positive succession planning message, albeit even if the measure is only for twelve months. Possibly the effect of this measure will be monitored and extension of period or otherwise will be decided in future. However, succession planning is a long process and 12 months may be too much of a short period to gauge the positive effects of such a move.

This budget has seen the proposal of various positive measures with regard to other sectors. However, one would have expected sturdier initiatives that facilitate both the creation of new micro and small businesses and the upkeep of already functioning ones – after all, these are also great contributors to the well-being of our economy.