Budget 2015 targets indirect tax revenues

Government is planning to improve its tax collection methods and run a campaign against tax evasion in a bid to consolidate inland revenue.

In a pre-budget glimpse of what is on offer this year, finance minister Edward Scicluna’s fiscal measures’ draft to the European Commission shows that VAT rates will remain unchanged, but that government will remain focused on shifting towards indirect taxation and easing the burden of direct taxation.

The report says that earnings from the Individual Investor Programme – Malta’s €1.15 million passport sale – will deliver 0.6% of GDP in 2014 and 0.57% of GDP to the Maltese economy in 2015, possibly averaging some €45 million each year.

The report said that further revenue in indirect taxation equivalent to 0.3% of GDP will be levied on consumer goods and services, and 0.06% of GDP will come from a revision in fees on market output, to compensate for the revenue foregone due to the lowering of income tax bands.

“Government is continuing the gradual shift from direct taxation towards indirect taxation while keeping the VAT rate unchanged, with the aim of making work pay and hence further increasing employment growth, competitiveness and ultimately boosting economic growth. Revenue losses from the revision in the income tax regime will be offset by enhanced efficiency in revenue collection as well as through revisions in indirect taxation. It is estimated that these will contribute positively to fiscal consolidation.”

The government also said that a higher equity injection to Air Malta in 2015 equivalent to 0.34 per cent of GDP. This will show as a reduction in structural effort although by its very nature the impact of this injection is temporary in nature and cannot be repeated in 2016.

Tax compliance and asset registration

To improve taxpayers’ compliance, a campaign will be held to increase awareness on how money collected from taxes is being used by government and what each citizen receives in return from the state in terms of infrastructure, services, health, education, and social security

VAT law revisions will see changes to penalties and interest payable on taxation due in order to increase tax compliance and ease the recovery of amounts due.

Persons residing in Malta who hold eligible assets without the necessary exchange control permits or without declaring the relevant income, including capital gains, for tax purposes, will be given the chance to regularise themselves – the asset registration scheme will close on 30 November 2014.

In order to reduce VAT evasion in the construction sector, if a property developer does not have available the VAT receipts to substantiate the estimated valuation of works he will be liable to pay the VAT due.

Health and pensions

Government also intends to build a New Regional Centre which will serve as a hub for a number of satellite health clinics. “This new build is necessary as current premises are not suitable to accommodate the new more specialised services government intends to devolve from the acute sector to the primary sector.”

The increase in pensionable age announced as part of the 2006 pension reform is expected to contribute an additional 0.14 per cent of GDP in national insurance contributions.

The Pensions Strategy Group is studying fundamental first pension design issues to see whether the pension system should ‘optimise’ poverty alleviation effectiveness, the smoothing of income over the life course of a person, how best to balance contributions to benefits, and how the system can be made more responsive to demography and other risks.

An Advisory Group on Third Pillar Pensions has been set up with the view to make recommendations relative to the introduction of such voluntary schemes in Malta.

“The group also  evaluated different types of fiscal incentives which would be offered to savers, and possibly their employers, if they also help support voluntary retirement saving provision. The group also considered different options of providing the in which way to provide the fiscal relief.

“The group also recommended the introduction of tax-favoured accounts, where interest earned on these accounts would be tax-free, with the option of converting such accounts into personal retirement schemes. Such tax-favoured accounts would supplement the introduction of voluntary third pillar pensions in Malta.”