Government, Ease Off!

Why is the Government in such a meddle over the VAT 2 price increases. These increases were expected because a change of this magnitude is tantamount to changing one's currency or financial language.

With the introduction of VAT2, prices of vatable imports will eventually go down but this will not occur in the immediate future. This is not so for vatable goods and services produced in Malta, which will rise in price depending on the quantum of local content in-built in their cost. This is as logical as the earth going round the sun.

In this initial pricing upheaval, very few operators have elected to price their products via the traditional gross profit percentages method which would have led to decreases in price of imported products.

Most business operators have retained their CET consumer price of which they intend to pass VAT at the rate of 15% of net turnover. Other operators have gone one step further and re-adjusted their prices by retaining their absolute CET gross profit, i.e., retaining their same CET gross profit in monetary terms. Both these methods, but especially the latter, lead to higher than expected prices.

Despite all Government pressure, it can be predicted that prices will rise even further before they will start coming down. In the short term, every operator will try to go for the absolute gross profit method.

However, given the tremendous competition that prevails in the market place, where every man and his dog is an importer, I am sure that given time, space and calm reflection, operators will re-adjust their prices downwards towards the market's logical equilibrium. A concerted campaign against operators will create more apprehension and hence delay this pricing re-adjustment.

It is in the best interest of the smart operator to bring down the market price as much as possible if he wishes to retain and increase his market share. I remember that in the seventies, a smuggled bar of chocolate cost 75c which immediately went down to 35c in the late eighties with the removal of its import prohibition. Today, you can buy the same chocolate for less than 15c in any shop in Malta.

Now that Vat is back in place, Government should sit back and allow things to take their natural course. It should leave operators in peace after this third tax change in as many years to sort themselves out. After all, Government will gain circa 43c (vat and income tax combined) from every Lm1 of unjustified increase in prices.

At this critical stage, and without making too much fuss, Government should devote the entirety of its time ONLY to educating operators AND curbing VAT evasion at the primary collection level, i.e., the accurate recording of turnover by way of cash registers or fiscal receipts.

All other bloodhounds from Vat, Income Tax, FSS, MFSC and Social Services, should be kept bolted to their kennel. Please remember that in addition to all this fiscal mumbo-jumbo, most operators still have to attend to Year 2000 compatibility problems.

In the last four years, operators have spent more time worrying about a barrage of government imposed whims and emergencies than attending to their entrepreneurial calling. A sad case of arrested development!

Malcolm Caire