Malta Budget Uneventful

by Lorys Charalambous, Tax-News.com, Cyprus

29 October 2010

As governments of low tax territories wrangle with public spending and reluctantly consider tax increases, the Malta government – expecting a continued recovery in tax revenues – has been able to pass a comparatively uneventful budget, containing only nominal increases to taxation.

Finance Minister, Tonio Fenech in his budget address noted that the islands, Malta and Gozo, are expecting an increase of EUR133.8m in direct and indirect taxation, and other revenue is expected to increase a further EUR105.9m, on that recorded in 2009.

Public finances however are not without challenge. The government deficit for the year 2010 is expected to reach EUR237.7m, or 3.9% of the gross domestic product, but this deficit is expected to be markedly reduced in 2011, as a result of the budget, to 2.8% of gross domestic product, below that being stipulated by the European Union, far faster than competitor jurisdictions, such as Ireland.

To achieve such a reduction in the deficit, government departments are being asked to submit by December 15 a plan to achieve cost efficiencies of 2% of their annual budget. In addition, extra funding will be provided to law enforcement, to battle against fraud and tax evasion, particularly in instances of intra-group manipulation of loss carryforward provisions, Fenech said.

Of the few tax changes to be introduced in the 2011 budget, value-added tax (VAT) legislation is to be amended to allow businesses filing online an additional seven days to complete their return and pay online.

In terms of rate changes, the general VAT rate is to remain the same, at 18%, but a tax on tourists, in the form of a higher rate on collective and private accommodation – currently subject to the reduced rate of 5% – is to be increased to 7%. It was determined that a EUR0.50 tax levied on tourists for every night spent in the island might deter visitors and so the proposal has been abandoned. The increased VAT rate is expected to be a temporary measure, to be revised for a more effective system in the future.

The only other revenue generating measures to be introduced in the Budget, are an increase to excise taxes on tobacco, by up to 4%; excise tax on local beer by slightly less than EUR0.01 on a 25cl bottle and by 13% on spirits. Excise tax on fuel is to be increased by EUR0.03 per litre, and to support the adoption of electric cars, a EUR5,000 subsidy will be provided on the purchase of such when a conventional car is scrapped.

In addition, the government has announced that it is rescinding the registration tax, of 6.5%, on sports vehicles used on racing tracks and other sites authorized by Transport Malta.

In other tax amendments, the government said that the European Investment Fund MicroCredit scheme has now reached its final phase of implementation. This will allow qualifying companies, employing up to 10 people, a 40% tax credit on costs incurred, up to a maximum of EUR25,000, on new investments that create jobs.

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