The president of the Institute of Financial Services Practitioners has
urged the financial services sector and the government to work together
to fully realise the potential of the agreement on business taxation
just reached with the EU.
The IFSP welcomed the agreement, announced in Parliament last week by
Parliamentary Secretary Tonio Fenech and said Malta needed to "act
cleverly" and promptly to take advantage of it.
Mr Fenech told Parliament yesterday week that the EU's Code of Conduct
Group for Business Taxation had approved the Malta corporate tax
framework as explained in the pre-budget document.
It was the second hurdle overcome by Malta in the space of a few months
after the tax system also survived scrutiny by the EU competition
authorities.
The process was not an easy one, with the business taxation group having
argued since 2003 that Malta's tax system was harmful in certain areas.
The IFSP said that lingering doubts over the sustainability of the local
tax system had caused Malta to conduct its marketing of financial
services in a restrained way, but now that the all clear had been given
"we need to go out into the international market place and make more
businesses aware of the advantages of using Malta".
He said all those who were in any way involved in the negotiations with
the EU deserved to be congratulated. The deal means that Malta's
unique tax imputation system, which has been in use since 1948, remains
intact.
"Along with modern and efficient regulation and comparatively low costs,
the taxation system has been one of the main reasons for the success of
the financial services industry. The sector has done really well over
the past few years without proactively marketing itself. If we are
clever in the way we do this going forward, we will make a huge
difference," Mr Valenzia said.
"The question we should be asking ourselves is not how well financial
services have done compared to other sectors, but how big this sector
can really be," he told The Times.
And he sees the opportunities as being huge.
"You only have to see what Luxembourg has done. Over a period of 30
years the contribution of financial services to GDP has risen to 81 per
cent from 47 per cent.
That has led to one of the highest standards of living in Europe and the
creation of so many jobs, that thousands cross over to the Duchy to work
every day."
He said that the initial advantage of the deal with the EU was "business
as usual" in that Malta had retained its competitive tax regime.
"We will continue to have the full imputation system and imputation
refunds will remain very similar to what we have today.
Therefore, a shareholder in a Maltese registered company will get full
credit for any company tax paid on that dividend so that the imputation
credit is equal to the company tax paid. When the tax rate applicable to
the shareholder is less than the company tax (35 per cent) then a refund
would be due to the shareholder."
Malta would thus remain the only EU member with a full tax imputation
system, and Mr Valenzia said he did not see other countries copying the
system soon because changes would be complex and would take time.
"A window of opportunity has now opened for us and we have to take
advantage of it. The government and the private sector need to get
together to implement a coordinated marketing approach, both
internationally and locally."
He said that the local aspect of any marketing strategy would need to
focus on the importance of the financial services sector and the factors
which contribute to it, including the attitude of all service providers
and the physical environment.
The more important overseas aspect was the marketing of Malta's
advantages for financial practitioners.
Up to now the MFSA and the financial practitioners had been doing their
own marketing in a low key manner, but that had to change, he said.
"We need proper funding, proper tools, coordination and focus. Just
consider the taxpayers' money that Malta directs to marketing the
manufacturing and tourism sectors and the sort of returns we get for it.
The financial services industry gets no direct funding for marketing and
yet we are getting a return which is higher on a per user basis than the
other sectors. Imagine how much more we would get with a proper
marketing strategy."
At the core of this issue, he said, was vision, Malta needed to reach
out for financial services growth because of the tax revenue it would
yield the government and the activity it would generate not just to the
practitioners themselves but also ancillary services such as transport
and accommodation.
Mr Valenzia said he did not feel Malta should focus its marketing on any
particular sector of financial services. Marketing had to be made at
different levels, with the top tier being on the general environment
such as regulation and taxation, with the practitioners then taking it
to the lower level focusing on the particular business of their
potential clients.
At the same time, he stressed, Malta needed to place greater emphasis on
the training of its people as a shortage of personnel was already being
felt. It should also continue its efforts to attract major international
banks and other regulated service providers.
