Maltese Budget Delivered

by Robert Lee, Tax-News.com, London

31 October 2006

Earlier this month, Malta's Prime Minister and Minister of Finance, Dr Lawrence Gonzi delivered the government's 2007 budget.

In it, he unveiled changes to income tax bands for individuals, expected to result in savings of Lm243 per year for those applying for married rates, and Lm155 for those applying for single rates.

In order to assist working families, he announced that where employers pay their employees for expenses related to childcare services, such expenses will be considered as business costs and therefore are deductible from taxable income.

In cases where employees receive payment from their employer for expenses related to childcare services, such payments shall no longer be considered as fringe benefits in the hands of the employee and will therefore no longer be taxable.

Speaking with regard to financial services, meanwhile, Gonzi announced that:

"Malta has already achieved important successes in the financial services sector. This year we estimate that around 2,500 companies will be added to the registry of companies. The total number of registered companies will reach the 40,000 mark. We also have eighteen banking institutions, more than 150 investment funds and eight insurance management companies."

He added:

"I am happy to note that earlier this year we have concluded an agreement with the European Commission that effectively safeguards the full tax imputation system. We are currently discussing the anti-abuse measures in our proposed tax system with the Code of Conduct (Business Taxation) Group. Government is expecting to conclude this political process forthwith. We will soon be publishing the necessary legislation to implement the agreement reached with the European Commission."

The Maltese Government has estimated an increase in revenue of Lm27 million over 2006.

The Prime Minister broke this figure down as follows.

"An additional Lm7 million will be received through Income Tax revenues, due to the changes in the income tax bands which I will explain later on. Social security contributions will also increase by Lm12 million, partly due to an additional weekly contribution attributed to 2007 having an extra Monday, as well as due to growth in employment and employment income resulting from the positive trend being experienced in our economy."

"The increase in excise duty revenues is expected to result from the transformation we have made earlier this year in Enemalta’s profits on fuels to excise duties. This way we will be able to transfer these funds back to the corporation to subsidise electricity generation whilst removing cross-subsidisation across Enemalta’s divisions and we will be able to continue the fuel liberalisation process without a negative impact on electricity bills."

"Although there are no financial implications, we will continue with the changes we have started in 2005 to gradually implement the EU minimum excise duty levels on energy products. VAT will contribute an increased revenue of Lm6 million in line with the growth in economic activity being experienced and which we expect to continue in 2007."

He continued:

"Government’s recurrent expenditure is expected to increase by Lm6.6 million only. Whilst social service pensions are expected to increase by Lm12.1 million, health related expenditure by Lm4 million, and another Lm8.3 million transferred to Enemalta, Government will offset these increased costs by continuing its expenditure reduction programme leading to a reduction in administrative expenditure of around Lm17.8 million."

The full text of the Maltese 2007 Budget can be found in the Tax News Resources section.

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