In neutral gear
Car importers and potential car buyers are no doubt trying to understand what the Minister of Finance meant when he urged the sector to carry on as if it were business as usual. Business is not proceeding as usual. Potential buyers are staying away...
Car importers and potential car buyers are no doubt trying to understand what the Minister of Finance meant when he urged the sector to carry on as if it were business as usual. Business is not proceeding as usual. Potential buyers are staying away from concluding purchases and even from visiting car showrooms. They are fully aware of the EU sword of Damocles that hangs over the government's head.
It was placed there when the European Commission sent a formal request to Malta to amend the tax regime applied to car imports, following a complaint raised by Joseph Muscat, the Labour Member of the European Parliament. The regime has attracted severe criticism for months. Successive governments have applied an ad valorem registration tax on all cars imported into Malta. According to specific definitions, including those applying to imports of second-hand cars, the tax is set at a minimum level, irrespective of the ad valorem outcome.
Once the cost of the car, made up of import value, customs duty if applicable, registration tax and profit is established, Value Added Tax is slapped on the resulting total. Effectively that means that VAT, as far as car imports go, is a tax on tax.
The result is that cars are very expensive in Malta, especially compared to similar models purchased in the rest of the European Union. Mr Muscat picked up the widespread complaints of car importers and buyers alike, and took the matter up with focused energy.
As a result, the European Commission sent a formal request to Malta asking it to amend the car tax regime. That happened well before the March general election, which means that the government had some time to work out what it has to do, in the context of the EU's strictures. As a matter of fact, the budget speech for 2008 stated that action was in the pipeline. No details were spelled out but it is common knowledge that the authorities plan an alternative tax regime based on environmental considerations.
The new regime will also have to take into effect the fact that the Finance Minister cannot afford to lose revenue - or much revenue - from the taxes on vehicle imports. The government introduced substantial income tax cuts over two years running and Budget 2009 will provide for further cuts, estimated at €46.59 million, to fulfil the PN's major election promise. The Finance Minister will also have to work out how the environmental bias of the proposed tax regime will not be such as to raise the operating costs of industry and commercial activities.
For all of that, the government has now fallen behind schedule as far as the European Commission is concerned and now has a short grace period within which to manoeuvre. Potential car buyers know that and are keeping their money in their bank accounts. Car importers are becoming desperate. A major one told The Sunday Times that his sales were "down by a whopping 95 per cent since the government revealed (in the budget speech) it would be revising the car registration tax last November".
Mr Fenech is not panicking. He feels there is no reason for anybody not to buy a car at the moment because they were "likely" to be exempted from fees that will come into force under the revised registration tax system.
"Likely" is not a convincing argument. In fact, it is a non-starter insofar as massaging public opinion goes. Nor is it enough that the government has signalled that it would be carrying out a reform of the car tax system which should theoretically lead to cheaper cars on the local market. The plans, said The Sunday Times, have prompted many motorists to put purchases on hold. One should think that they will remain there as long as the government's plans remain nebulous or until the authorities give a definite commitment regarding the measures they will be proposing to the House of Representatives. It is likely that measures will feature, more or less in the language used in the budget speech, in the address which the President will make on behalf of the government when the 10th session of Parliament is opened in roughly a month's time. Specific draft legislation will then have to be presented to and passed by the House of Representatives. The House is likely to approve what the government proposes but the timeline is not clear.
That will not ease car importers' worries. One importer of a leading car brand told The Sunday Times that hardly anybody was visiting his showroom and those who did said they would wait for the revision of the tax before deciding whether to place an order. He said sales had dropped to such an extent that the company's salesmen were being roped in to assist with mopping up the paperwork. Another agent said sales had dropped by around 60 per cent and several orders were cancelled right after the story first surfaced in The Sunday Times last November.
Another agent said that the government should take into account the car industry's potential impact on employment, especially with its ripple effects on sectors like advertising. An official from the Car Importers Association said uncertainty over the registration tax had extended the slowdown traditionally generated by budgets and elections.
Mr Fenech told The Sunday Times that an annual charge on the carbon dioxide emissions of the car is to be introduced and a portion of the tax which is paid up front will remain. He made it clear that the new system will be a replacement of the present tax regime, not an elimination. He said the government informed the European Commission about its planned reform, which - more bad news for importers in terms of the timeline - could be included in the next pre-budget document, to be followed by a consultation process with the stakeholders. The government is looking at foreign models of the tax, with the intention of tailoring them to the local situation.
The minister said he did not have a magic wand. But he certainly has people breathing down his neck. The government is also losing revenue, which it may not recoup in full.
It was placed there when the European Commission sent a formal request to Malta to amend the tax regime applied to car imports, following a complaint raised by Joseph Muscat, the Labour Member of the European Parliament. The regime has attracted severe criticism for months. Successive governments have applied an ad valorem registration tax on all cars imported into Malta. According to specific definitions, including those applying to imports of second-hand cars, the tax is set at a minimum level, irrespective of the ad valorem outcome.
Once the cost of the car, made up of import value, customs duty if applicable, registration tax and profit is established, Value Added Tax is slapped on the resulting total. Effectively that means that VAT, as far as car imports go, is a tax on tax.
The result is that cars are very expensive in Malta, especially compared to similar models purchased in the rest of the European Union. Mr Muscat picked up the widespread complaints of car importers and buyers alike, and took the matter up with focused energy.
As a result, the European Commission sent a formal request to Malta asking it to amend the car tax regime. That happened well before the March general election, which means that the government had some time to work out what it has to do, in the context of the EU's strictures. As a matter of fact, the budget speech for 2008 stated that action was in the pipeline. No details were spelled out but it is common knowledge that the authorities plan an alternative tax regime based on environmental considerations.
The new regime will also have to take into effect the fact that the Finance Minister cannot afford to lose revenue - or much revenue - from the taxes on vehicle imports. The government introduced substantial income tax cuts over two years running and Budget 2009 will provide for further cuts, estimated at €46.59 million, to fulfil the PN's major election promise. The Finance Minister will also have to work out how the environmental bias of the proposed tax regime will not be such as to raise the operating costs of industry and commercial activities.
For all of that, the government has now fallen behind schedule as far as the European Commission is concerned and now has a short grace period within which to manoeuvre. Potential car buyers know that and are keeping their money in their bank accounts. Car importers are becoming desperate. A major one told The Sunday Times that his sales were "down by a whopping 95 per cent since the government revealed (in the budget speech) it would be revising the car registration tax last November".
Mr Fenech is not panicking. He feels there is no reason for anybody not to buy a car at the moment because they were "likely" to be exempted from fees that will come into force under the revised registration tax system.
"Likely" is not a convincing argument. In fact, it is a non-starter insofar as massaging public opinion goes. Nor is it enough that the government has signalled that it would be carrying out a reform of the car tax system which should theoretically lead to cheaper cars on the local market. The plans, said The Sunday Times, have prompted many motorists to put purchases on hold. One should think that they will remain there as long as the government's plans remain nebulous or until the authorities give a definite commitment regarding the measures they will be proposing to the House of Representatives. It is likely that measures will feature, more or less in the language used in the budget speech, in the address which the President will make on behalf of the government when the 10th session of Parliament is opened in roughly a month's time. Specific draft legislation will then have to be presented to and passed by the House of Representatives. The House is likely to approve what the government proposes but the timeline is not clear.
That will not ease car importers' worries. One importer of a leading car brand told The Sunday Times that hardly anybody was visiting his showroom and those who did said they would wait for the revision of the tax before deciding whether to place an order. He said sales had dropped to such an extent that the company's salesmen were being roped in to assist with mopping up the paperwork. Another agent said sales had dropped by around 60 per cent and several orders were cancelled right after the story first surfaced in The Sunday Times last November.
Another agent said that the government should take into account the car industry's potential impact on employment, especially with its ripple effects on sectors like advertising. An official from the Car Importers Association said uncertainty over the registration tax had extended the slowdown traditionally generated by budgets and elections.
Mr Fenech told The Sunday Times that an annual charge on the carbon dioxide emissions of the car is to be introduced and a portion of the tax which is paid up front will remain. He made it clear that the new system will be a replacement of the present tax regime, not an elimination. He said the government informed the European Commission about its planned reform, which - more bad news for importers in terms of the timeline - could be included in the next pre-budget document, to be followed by a consultation process with the stakeholders. The government is looking at foreign models of the tax, with the intention of tailoring them to the local situation.
The minister said he did not have a magic wand. But he certainly has people breathing down his neck. The government is also losing revenue, which it may not recoup in full.