Malta posts highest tax burden rise in EU

Although the Maltese are not the most taxed citizens in the European Union they have experienced substantial tax increases over the past decade.

According to a study published by Eurostat, the EU's statistical arm, Malta registered the highest increase in the overall tax burden among the 25 EU member states between 1995 and 2004 - 7.6 per cent of GDP.

'This stems from an increase in the VAT receipts resulting from a decrease in the range of goods exempted or taxed at lower rates, increases in personal income tax and consumption taxes arising from the broadening of the base, efforts to improve efficiency in collection and the tax on the capital gains generated through the privatisation of Malta International Airport," Eurostat said.

Malta's trend runs counter to the EU where the average tax burden dropped marginally from 39.7 per cent of GDP in 1995 to 39.3 per cent in 2004.

Eurostat said that in Malta the overall tax burden, including social security contributions, currently stands at 35.1 per cent of GDP, comparable with the average for the new member states (33.7 per cent) but substantially lower than the EU average (37.6 per cent).

"Malta relies heavily on indirect taxes; their share of total tax take lies well above the Union's average (45.1 per cent whereas the EU25 average stands at 38.2 per cent). The overall taxation structure is similar to that in the UK (indirect taxes, direct taxes, social contributions in a rough 2:2:1 ratio), reflecting the fact that the Maltese tax system has its origin in the former British system".

The study also shows that although the Maltese are, on the whole, relatively lightly taxed, indirect taxes absorb a proportion of GDP (15.9 per cent) which is higher than the EU average (14.2 per cent). Direct taxes however take in a proportion in line with the EU average (12.2 per cent) while social security contributions yield comparatively little revenue, roughly half of the EU average in GDP terms (6.9 per cent of GDP; EU25 11.4 per cent).

In terms of social security contributions, employees contribute somewhat below the European average (Malta 3.1 per cent, EU25 3.5 per cent), while employers contribute less than half the EU25 average (Malta 3.1 per cent, EU25 6.8 per cent). As Malta has no sub-central level of government that collects taxes and does not maintain a social security fund separate from the central Exchequer, Eurostat said that 99.2 per cent of receipts are collected by the central government. The average in the EU is 59.4 per cent.