Most small and medium businesses report that they generated lower profits in 2023, even though revenues increased, an issue that analysts say points to a deeper problem in Malta’s economic model. And although the long-term change must be of a structural nature, in the short-term, Government can help businesses and consumers alike by cutting taxes to reduce the burden.

The findings emerge from the latest study conducted by misco for the Chamber of SMEs, to which more than half the respondents were micro-businesses (between one and nine employees) or self-employed individuals.

It revealed that businesses did their utmost to increase sales, investing considerably in marketing and offering their customers a greater range of offers, deals and discounts. These efforts were rewarded, with 46 per cent of respondents reporting higher turnover (26 per cent said total sales remained the same, and 28 per cent said they decreased).

Those who saw their sales decrease blamed a wide range of factors, of which the most relevant were related to rising prices (‘decrease in consumer spending power’: 62 per cent; ‘inflation’: 37 per cent; ‘increase in my prices’: 30 per cent) and over-competition (‘increased competition’: 44 per cent; ‘illicit trading/unfair competition’: 31 per cent; ‘too many shopping complexes/areas’: 26 per cent).

Interestingly, 18 per cent – almost a fifth – indicated that their lower sales came as a result of construction and infrastructural works in their area (a group of businesses in Mosta even took the local council and Infrastructure Malta to court over the issue).

Even though 72 per cent of respondents said their turnover increased or remained the same, 40 per cent said that their profit decreased from the registered during 2022.

“So we have a situation where revenues are increasing but profits are failing,” said misco co-founder Lawrence Zammit. “Obviously, this is not sustainable.”

SME Chamber president Paul Abela pointed out that investment ultimately rests on the expectation of profits: “Businesses are asking themselves, Is it worth investing if I’m making more effort, generating more sales, but resulting in less profit?’”

SME Chamber CEO Agius Mamo noted that although much of the discourse has been around imported inflation, there are things Malta can do to bring spiralling prices under control – first and foremost being wage increases selected by 63 per cent of respondents as a primary reason for their higher costs.

The organisation therefore called on the Government to take action where it could, starting from reducing taxes. These include VAT, which the SME Chamber wants cut to 15 per cent from the current 18 per cent, and a reduction in corporate income tax to put local companies on a more level footing with those from abroad, which benefit from Malta’s generous tax refund system for foreign shareholders.

Mr Zammit concluded: “Ultimately, we are an export-based economy relying on tourism, financial services, iGaming. All other sectors, like retail and construction, depend on these exporting industries. The worry is that if costs go higher, it will impact our competitiveness.”

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