Prime Minister clamps down on Profiteering

Prime Minister Dr Alfred Sant said the Government had over months and weeks, discussed with the private sector responsible for the implemention of the new Tax System and was satisfied that its design fitted as close as possible to the realities of Malta. The Prime Minister was addressing members of the 'Malta Institute of Accountants' at the New Dolmen Hotel, Bugibba on the New Tax System. Dr Sant said that accountants were now charged with the task of implementing the tax, through the advice they gave to convince operators, regarding the new cost and price structures operated by the tax. The Prime Minister expressed confidence in the professional competence and skill of the accounting profession to carry out this task.

He stated also that in this phase of the implementation of the new tax system, Government is focusing on the need to fully protect the interests of consumers. While businessmen have the GRTU, the Chamber of Commerce and the Federation of Industries to defend them, the consumer stands practically alone. Government will not keep back from providing the consumer with a defence of his interests, not least by using the modern technique of advertising and marketing. The consumer needs to be informed courageously and honestly about the real pricing situation.

The Government has made it clear that it will endorse price rises under the new tax system if these truly result from it. Equally, it will contest price charges or lack of charges that it deems to be abusive, as they do not result from the actual change in taxation structure. Where prices have to drop, they must do so.

In this process, tax leakages onto production costs from Excise Tax on Services (ETS) must be computed seriously. There have already been cases where tax burden of ETS on production costs was being overestimated to compute production costs and final pricing. Such practices would be contested, the Prime Minister said, and he appealed to the accounting profession to ensure that the calculation of ETS on production and distribution costs to be made in a transparent manner.

Meanwhile, cases have been recorded of companies taking advantage of the change in the structure, to profiteer and/or to change their competitive posture. Such an approach was not acceptable, the Prime Minister stated.

Changes in prices should be done on a product by product basis (or service by service), taking into account only the effect that the tax change implied for the costing of the particular product or service.

It is not acceptable for a firm to compute the overall change in its costs due to the tax change, and then selectively download it on a particular section of its range of products, having another segment pegged at a higher level of costs and prices. Nor was it acceptable for products and services whose price to the consumer should go down, to the level pegged with the price prior to l July 1997, simply by fixing its pre-ETP price at 5% less than the previous VAT price.

The Prime Minister said that in order to give business and the citizen a fair deal, the only factors that had to go into the calculation of price and cost charges were those resulting only from the tax changes. The Government would be applying its marketing effort to ensure that the consumer is aware of this. The Prime Minister made it clear that he stood by the statements he made earlier this week regarding the abusive pricing policies of certain fast food chains, Michael Vella Ltd and Hard Rocks Ltd.