Meeting our fiscal objectives
According to the front page article of The Sunday Times, as reported by Herman Grech, the Government is expected to honour its electoral pledge to reduce the maximum income tax rate.
It was reported that “to keep in line with the country’s fiscal objectives some measures are to be taken to make up for the shortfall, which may prompt an increase in excise tax”.
While this statement is not quoting any official source, and therefore, cannot, at least at this stage, be considered as factual, it nonetheless merits some reflection as we stand on the eve of the budget.
From the outset, one must make the point that shifting from direct to indirect forms of taxation is positive and conducive towards incentivising work and investment. This, however, can only be considered positive so long as indirect taxation is effectively and efficiently enforced.
Being part of the single European market, we have moved away from (intra-EU) border controls – towards self-declarations. Though this is essentially a positive development, it has given rise to the need for more effective market surveillance to ensure that all businesses are operating within a level playing field in which an equitable fiscal and regulatory market environment prevails, ensuring compliance along with free but fair competition amongst all.
Within the context of what has been reported – which measure would best address any possible shortfall in income tax? Is it by increasing excise tax or by ensuring a more efficient collection of current applicable tax?
Which would serve the best interest of the Government’s fiscal objectives, legitimate businesses operating in compliance with their fiscal obligations and the consuming public in general?
Would not increasing excise tax in the absence of more effective market surveillance favour those operating outside the fiscal radar, at the expense of law-abiding businesses which would need to carry a higher tax burden and place them in a competitive disadvantage?
More so, could there not be the added complication should an increase in excise tax be higher than that in neighbouring countries resulting in an element of unfair (that is, undeclared) cross-border trade – which is now based on self-declaration?
Would not a proper functioning market serveillance mechanism lead to improve Government coffers without the need to consider increasing excise tax?
And generally speaking, while reiterating that a shift towards indirect taxation is essentially positive, is fiscal consolidation, along with the needed economic growth, best achieved through an increase in taxation or through more efficiency in tax collection? Therefore, reference needs to be made to the Government’s announcements over the last two budgets – namely that of consolidating the departments responsible for Inland Revenue, VAT, Customs and Tax Compliance.
Here, it was encouraging to note that a Parliamentary Bill was unanimously approved last year. One should rightly expect (and augur) that the Finance Minister will provide an update on this, giving a cursory overview on the vision and objectives of this departmental consolidation exercise, along with the Government’s strategy on the shift from direct to indirect taxation.
A clear message here would certainly be most welcome by all law-abiding businesses, which need to face and live up to their fiscal and regulatory obligations along with the daily competitive pressures. (Here, even the Opposition would likewise do well to underline its stand.)
There certainly are numerous considerations when seeking to establish our national fiscal objectives. No doubt that the budget speech will amplify on this but ultimately we must keep sight of the bigger picture.
Though one cannot dispute the importance and necessity of adopting the right level and dose of fiscal policy along with its proper enforcement, it is important that the Budget continues to build on the necessary foundations for a thriving economy through the further stimulation of private enterprise, because it is private enterprise which leads to greater prosperity. One always expects that this remains the driving force behind any policies or measures that may be introduced.
The impending Budget must pursue policies which create wealth and which do not unduly or unfairly compromise the competitiveness of legitimate business. There is little doubt that a vibrant and active economy is what drives needed wealth.
Therefore, whether we are in business or part of wider society, it is in our interest to ensure that private enterprise operates within a free but fair competitive environment – where the necessary regulatory and fiscal policies are equitably enforced among all concerned, without penalising law-abiding business.
Bottom line: deal with any shortfalls in tax revenue through the efficient collection via the right structures and with the right tools as opposed to easy, quick fix solutions of increasing indirect forms of taxation, such as excise tax.