Indirect tax among highest in EU

Malta has the fourth highest indirect taxation rates in the European Union but one of the lowest tax-to-GDP ratios among member states, according to statistics released by Eurostat yesterday.

The overall tax burden in the 25 EU member states decreased from 41.1 per cent of GDP in 2001 to 40.4 per cent in 2002, according to the publication Structures of the Taxation Systems in the EU, issued yesterday by Eurostat, the statistical office of the EU.

The publication also showed there was a lower tax burden on average in the new member states.

In all 10 new member states, the tax-to-GDP ratio was lower in 2002 than the EU15 average, ranging from 28.8 per cent in Lithuania to 39.8 per cent in Slovenia.

The publication shows large differences in the tax burden between member states. Sweden recorded the highest tax-to-GDP ratio (50.6 per cent in 2002), followed by Denmark (48.9 per cent), Belgium (46.6 per cent) and Finland (45.9 per cent). The lowest ratios were observed in Ireland (28.6 per cent), Lithuania (28.8 per cent), Latvia and Malta (31.3 per cent each) and Cyprus (32.5 per cent).

Malta's rate of taxes has, however, increased steadily from 27.7 per cent of GDP in 1995.

In 2002, the overall tax burden (the total amount of taxes and social security contributions) in the EU stood at 40.4 per cent of GDP. The tax-to-GDP ratio increased from 40.5 per cent in 1995 to 41.8 per cent in 1999, then declined steadily from 1999 to 2002.

From 2000, the reductions in the majority of member states have been partly due to reforms in tax systems, particularly through cuts in personal income tax rates and in social contributions.

In 2002, as compared with 2001, the tax burden declined in 16 out of 25 member states and increased in eight.

Looking at the different types of taxes and their share in total tax revenues, generally, the new member states have a lower share of direct taxes in relation to total tax revenues and a higher share of indirect taxes and social security contributions.

In 2002, Poland, Slovenia and Slovakia recorded the lowest shares of direct taxes, while, on the other hand, Denmark, the UK and Finland had relatively high shares of direct taxes.

Malta's rate of direct taxation stood at 36.1 per cent of the total tax burden, above the EU25 average of 33.1 per cent.

With regard to indirect taxes, Ireland (43.7 per cent), Lithuania (43.5 per cent), Cyprus (42.7 per cent) and Malta (42.5 per cent) recorded the highest values compared with 34.8 per cent for the EU25, while Belgium (29.7 per cent), Germany (30.5 per cent) and Finland (30.6 per cent) registered the lowest shares.

Regarding social contributions, the largest shares were observed in the Czech Republic, Germany and Slovakia compared with 32.1 per cent for the EU25.

Malta's social security contributions in 2002 were 21.4 per cent of the total tax burden, below the EU 25 average of 32.1 per cent.

With a rate of 35 per cent, Malta is among the cheapest where top statutory personal income tax rate is concerned. The highest rates are found in Sweden (56 per cent) and Finland (53 per cent).

In 2004, the top statutory personal income tax rate in the EU15 is on average 46.2 per cent compared with 34.9 per cent for the new states.

Top statutory tax rate on corporate income was highest in Germany (38.3 per cent), with Malta placing in the top five highest brackets with 35 per cent.