The investment aid tax credit and its effectiveness : an analysis

Abstract

PURPOSE: The aim of this study is to outline how the Investment Aid Tax Credit scheme functions and to identify the benefits deemed to have ensued as a result of the scheme, in addition to any possible limitations, thereby analysing its effectiveness.

DESIGN: A qualitative approach was deemed to be more appropriate for this study as it allows the researcher to analyse in more depth, all comments made by the interviewees. After analysing literature explaining how the scheme works, field research was carried out by conducting semi-structured interviews with fifteen beneficiaries making use of the scheme as well as with a representative at Malta Enterprise along with tax managers at all Big 4 companies in order to substantiate the findings.

FINDINGS: The findings suggest that the benefits reaped from the scheme far outweigh the limitations. Its ultimate benefit resulted in increased investment projects resulting in an overall improved economy despite the tax savings being made by the beneficiaries. On the other hand, the main challenge faced was by the large entities who have become more restricted in applying for the scheme as a result of legislative changes in EU State Aid regulations.

CONCLUSION: It can be concluded that the scheme has been effective in increasing investment while allowing beneficiaries to benefit from tax savings which could further reinvested. Given its dubious future, it was determined that authorities should start thinking about alternative measures for potential investors. This is because the scheme’s depletion may signify facing harsher competition since investors may be thwarted off to other lower-cost countries.

VALUE: This study is expected to be useful both for Malta Enterprise (ME) and the beneficiaries of the scheme. ME can refer to the feedback gathered by the interviewees and the recommendations made by the researcher in order to make any adjustments and improvements as necessary. Additionally, other than obtaining a general overview of how other entities in the industry perceive the scheme, beneficiaries may refer to this study to familiarise themselves with other available schemes and opportunities which they may benefit from instead of or in conjunction with the scheme.