The tax exemption for Maltese co-operatives and its implications : an analysis

Abstract

Purpose: The aim of this research study was to analyse the tax exemption conceded to Maltese co-operatives and to address its implications by evaluating possible alternatives with the aim of providing recommendations for possible improvements. Design: The objectives were achieved by the conduct of 21 semi-structured interviews with participants involving co-operative representatives, government representatives and specialists in the field of taxation and co-operatives, and by a review of the financial statements of a sample of five co-operatives over a period of four years. Findings: The findings indicate that although the existing tax exemption serves as an incentive in encouraging co-operative start-ups, there are more valid reasons why a number of individuals may choose to set up a co-operative, such as the co-operative model per se and the one-member-one-vote system. Results highlight that such a tax exemption may have attracted a number of applicants forming a co-operative merely for them to avail themselves of such an exemption, rather than because they had any deep interest in the co-operative values and principles. Conclusion: This study concludes that a review to the tax exemption is likely to benefit Maltese co-operatives. Besides, the existing tax exemption on its own is evidently insufficiently viable in encouraging new co-operative start-ups and in being taken seriously in the individual co-operative dilemma as to whether, and the extent of, ploughing back or distributing surpluses resulting from successful financial performance. Value: It is hoped that this study contributes to the promotion and development of Maltese co-operatives. Recommendations include, among others: the introduction of a social audit for each co-operative, with the main objective of judging whether and to what extent it may be eligible for tax exemption and other support; reviewing the assetlock provision in such a way that it does not undermine the tax exemption provision; and launching vigorous co-operative education programmes with a view to promoting co-operative ideals and practices.