Corporate tax rate to go down to levels last seen in over a generation.
Now that the economic effects of the pandemic are receding, businesses need to rebuild their activities better and stronger. Maltese businesses currently face a tax rate of 35%, which means that a third of their profits go to the Government.
Additionally, as a result of the challenges presented in recent years, it will undoubtedly take time for businesses to rebuild their fiscal buffers. And looking forward, firms face two new challenges: digitalisation and decarbonisation which equally require considerable investment and changes to be made.
Labour is now proposing to revisit corporate tax, in a bid to reduce the main cost that businesses have to pay.
For the first time ever, a new Labour Government will cut the corporate tax rate by 10%: from the current 35% to 25%. This measure, which is focused primarily on small and medium-sized enterprises, will be applicable for the first €250,000 of profit.
And here are a few real, practical examples of how this measure will come into force.
Example 1: A small hotel
The scenario of a small hotel that employs 20 full-time personnel and makes a yearly profit of €250,000. As a result of the proposed change in the corporate tax rate, this hotel will save €25,000 in tax and this amount can be used to pay the salary of two employees.
Example 2: A manufacturing company
On the other hand, consider a manufacturing company that produces furniture and employs ten workers with an annual profit of €150,000. Thanks to the change in the corporate tax rate, this company will save the sum of €15,000 which is enough for the company to pay the social security contributions of all its workers.
Example 3: An IT start-up
A final example: an IT start-up that employs two programmers and makes a profit of €50,000. With the change in the corporate tax rate, this start-up will save €5,000 which can go towards the purchasing of technological equipment that the company needs to enhance its operations.
These three aforementioned examples provide a tangible overview of the strength and benefits of this proposal.
The post-1987 Nationalist administration has been labelled as the one that launched the private market economy. This same administration in 1990, however, had raised the corporate tax rate from 32.5% to 35%. And Labour’s proposal will bring down the tax rate to levels not seen in over a generation.
This proposal will translate into an injection of €100 million directly to businesses. Furthermore, it is an even larger boost than the incoming 2013 Labour administration had given to firms by reducing energy prices by 25%. That measure had saved firms €50 million in operating costs. The reduction in the corporate tax rate will be double as strong.
This is the right time to cut burdens that weigh businesses down.
The Nationalists in Government had increasingly piled pressure upon firms until the administration ultimately broke down our country’s economic machine. Through hard work and a strategic vision, Labour managed to deliver substantial change in the last two legislatures. It is now time for firms to also benefit from some of the tax reductions that families already enjoy.
Under a Labour Government, only those on relatively high incomes are taxed at 35%. It does not make sense for small and medium sized companies to be taxed at that rate. In our new knowledge-based service economy, we need to provide incentives for knowledge workers to set up their own firm rather than impose upon them a tax system that constrains them to remain employed.