Income tax bands adjustments announced

Finance Minister John Dalli announced an easing of income tax for low and middle income earners and a number of measures to benefit small businesses and the environment in his budget speech yesterday.

"The purpose of the budget is to ensure not only that no one falls behind but also that the country does not fall behind," the minister said in a press briefing before delivering his speech in parliament.

He said the gross domestic product was this year expected to show a growth rate of 2.7 per cent in real terms and five per cent in nominal terms to reach Lm1.714 billion after having showed a negative growth of 0.8 per cent last year.

Government ordinary revenue was expected to reach Lm746 million, an increase of Lm78 million over last year and Lm11 million more than projected in the budget for this year. While revenue had increased from all sources, the major increase - Lm28 million - resulted from more efficient tax collection, the minister said.

Total expenditure this year would reach Lm825 million, of which Lm721 was recurrent. The total expenditure, the minister said, would be Lm12 million higher than projected and Lm71 million more than last year. The prime reasons for the increase were spending on Mater Dei Hospital, which had absorbed Lm29 million this year, Lm13 million more than projected, and Lm6.6 million spent in terminal benefits as part of the early retirement scheme for the shipyards.

The new hospital's total cost until completion would reach Lm100 million.

The structural deficit would this year reach Lm78 million, down by Lm7 million from last year. The deficit would thus be equivalent to 4.6 per cent of GDP. The minister noted that according to a programme laid out in 1998, the deficit for this year had been projected to stand at Lm125 million.

Real GDP growth is expected to stand at five per cent between this year and 2003 and the deficit would stand at just under Lm75 million, or 4.1 per cent of GDP.

The minister devoted much of his speech to the government's achievements over the past four years. The results, he said, showed how the government had not concentrated solely on preparing Malta for European Union membership but had worked to improve everyone's standard of living.

Next year, he said, would be a "year of destiny" when the people would be asked to make important choices.

He said ordinary revenue was expected to reach Lm771 million next year. The sale of assets is projected to yield Lm42 million compared to Lm39 million this year. Recurrent expenditure was expected to rise by Lm16 million to Lm677.3 million.

Capital expenditure would rise by Lm4 million to Lm108 million. Lm60 million would go for debt servicing, down from Lm64 million this year.

He said that over next year public consumption was expected to grow by 1.4 per cent, private consumption by 2.1 per cent and investment by 4.6 per cent. Imports were expected to grow by 5.3 per cent and exports by 5.4 per cent.

In announcing the budget measures, the minister recalled that last year income tax rates had been adjusted so that a married couple making a joint declaration could save as much as Lm145 in tax.

It had now been decided that income tax bands would open up once more from three to five.

For a married couple with a joint declaration, the income that would be taxable would be that above Lm4,300 instead of Lm4,100 as at present.

In view of the introduction of the two new tax bands, tax on income between Lm4,301 and Lm6,000 would be 15 per cent, on income between Lm6,001 and Lm7,250 the rate would be 20 per cent, on income between Lm7,251 and Lm8,500 the rate would be 25 per cent, on income between Lm8,501 and Lm10,000 the rate would be 30 per cent and on income exceeding Lm10,000 the rate would be 35 per cent.

Those who filed a separate declaration and taxpayers who were single would see the amount subject to tax raised from Lm3,000 to Lm3,100. Even here, the bands would be increased to five.

On income from Lm3,101 to Lm4,101, the rate would be 15 per cent, on income from Lm4,101 to Lm5,000 the rate would be 20 per cent, on income between Lm5,001 and Lm6,000 the rate would be 25 per cent, on income between Lm6,001 and Lm6,750 the rate would be 30 per cent and on income exceeding Lm6,750 the rate would be 35 per cent.

This meant, the minister said, that married couples with a joint declaration would save up to Lm187 in tax annually whereas those with a separate declaration would save up to Lm108 in tax annually.

The minister announced that excise duty on cigarettes was being raised so that the retail price of a packet of 20 king size cigarettes would be Lm1.25c while a packet of 20 standard size would be sold for Lm1.10c.

Excise on hand-rolled tobacco will rise to Lm22.25c per kilogram and excise duty on cigars will go up to Lm5 every 1,000.

Vehicle registration for cars specially equipped for racing would be brought down to 6.5 per cent instead of the current rates of between 50.5 per cent and 75 per cent and there would be no payment of road licences in their regard.

Registration tax for vintage cars was also being reduced. Vehicles manufactured before 1951 would pay between 11 per cent and 16.5 per cent; vehicles manufactured between 1951 and 1970 will pay 50 per cent of the rate registration. Road licences for these vehicles would be reduced by half.

Mr Dalli said levies would continue to be dismantled next year. As from January 1 the levies on all industrial products imported from the EU would be removed.

He said income tax due by foreign residents was being raised.

VAT would also be imposed on electricity and gas cylinders next year but this would be absorbed by Enemalta without extra cost to consumers.

As from January, no VAT would be charged on the teaching of ballet and of music.

Mr Dalli said there would be an easing of the penalty administration regarding overdue VAT and income tax so that those who normally observed the law but who in abnormal circumstances did not meet their obligations would be admonished and would only be penalised when there was a relapse.

Other administrative measures would be taken so that taxpayers could be in a better position to settle their outstanding balances under the VAT 1995 and under CET.

In listing measures aimed at protecting the environment, the minister said electrically powered vehicles would be exempt from registration tax and such vehicles would, for the next five years, be exempt from tax to enter Valletta.

No import duties would be charged on recycled and bleach-free paper and there would be lower rates for degradable refuse bags and shopping bags manufactured from recycled paper and carton and on consumption-reducing electricity bulbs.

No road licence will be charged for battery operated mopeds.

Owners of property registered under the Voluntary Registration Scheme for Valletta, Floriana and Cottonera would get a refund of VAT paid on the rehabilitation of those premises.

Mr Dalli also announced a series of measures to benefit entrepreneurship and said the measures for SMEs announced last year for companies whose turnover did not exceed Lm100,000 were being extended to companies whose turnover did not exceed Lm250,000.

Mr Dalli said measures would continue to be taken next year to remove exchange control requirements.

Turning to social benefits, the minister announced an increase in supplementary allowance and measures on the payment for maintenance of children in cases of marriage separations as a result of which the partner who received payment for the maintenance of children would not be taxed on the amount.

There would be an increase in children's allowance for those with three children and more and new procedures in the working of tax calculations on arrears of pensions.

Mr Dalli said that cost of living increases for pensioners would henceforth be calculated on the basis of a cost of living index for pensioners rather than two thirds of the ordinary cost of living index.

As a result of this, in 2003, the increase in the cost of living for pensioners would be Lm66.04c instead of Lm60.67c for which they would have been otherwise entitled under the previous calculations.

The allowance to make up for the cost of living increase will be Lm1.75 per week.

Mr Dalli announced measures to benefit casual social assistants and said a subsidy scheme was also being introduced on payments that parents made for day care service for children under three years.

The minister said that in order to reduce the burden on those who bought their own residence, the value that would be subject to the 3.5 per cent stamp duty was being raised from the current Lm20,000 to Lm30,000. In this way, a person buying property for his own residence would gain another Lm150 in savings on stamp duty.

A system was also being introduced to simplify and reduce tax paid by farmers, the minister said.

Budget measures

¤ Reduced income tax through adjustment of tax bands
¤ Cost of living allowance of Lm1.75
¤ Cost of living index for the elderly
¤ Reduced stamp duty on purchase of property
¤ Improved tax system for farmers
¤ Reduced taxation on race cars, vintage cars
¤ Tax registration exemption on electric cars
¤ Removal of VAT on teaching of music, ballet
¤ Subsidy on use of child care centres
¤ New VAT on power, gas to be absorbed by Enemalta
¤ Higher cost of tobacco products