Government 'may be forced' to refund departure tax

The government should abolish the departure tax altogether or risk having to reimburse all the taxes paid since EU accession, Nationalist MEP Simon Busuttil has warned.

The government should redress the situation as soon as possible so that the European Commission can close its file rather than move on to legal proceedings, Dr Busuttil, a lawyer specialising in EU law, told The Times.

The Commission has written to the government saying it deemed the Lm20 tax to be discriminatory, giving it two months to submit a reply in writing.

Parliamentary Secretary Tonio Fenech has in the meantime said he disagreed with the substance of a number of the issues raised by the EU, though he said the departure tax might be reduced in the upcoming budget.

But Dr Busuttil said that in its current form, the tax is incompatible with EU law and must, therefore, be revised or removed altogether.

"I'm not surprised that the Commission considers that the departure tax infringes EU law. If anything, I am surprised it took so long to come to its conclusion."

The government has no choice but to try and raise revenue from other sources or else impose a flat tax on both incoming and outgoing travel.

Dr Busuttil had listed five possible grounds on which the tax could be challenged, with the Commission taking up the first two.

"I believe that this issue goes beyond the tax rate itself - whether Lm10 or Lm20. It is a matter of principle, the freedom of movement. And principles cannot be measured in money," he said.

A mere reduction of the departure tax is no longer possible because the objection is to the very form or structure of the tax and not merely its rate.

Dr Busuttil believes Malta is obliged to refund any tax that is collected in breach of EU law.

Indeed, it is an established principle of EU law - well-developed in various judgments of the European Court of Justice - that any tax collected in breach of EU law must be paid back to the taxpayers.

As the court stated in one judgement: "the court has consistently held that individuals are entitled to obtain repayment of charges (tax) levied in a member state in breach of Community provisions".

When, the tax on satellite dishes was repealed two years ago, all those who paid it with effect from May 2004 had got a refund.

But, of course, in the case of the departure tax, it stands to reason that a refund is likely to be much more complicated, both in financial terms (because the amounts at stake are much higher) as well as in terms of how to actually administer the repayments to passengers who paid the tax.

Dr Busuttil explained that infringement proceedings involve three stages, only at the last of which would the Commission actually institute legal proceedings in the European Court of Justice. The first two stages consist of formal exchanges between the Commission and the member state concerned and the matter may stop at the first or second stage if a settlement is found that can prevent the matter going to court.

"If the matter ends up in court and a ruling against the departure tax is given, as it is likely to do, then claims for repayment of the tax by aggrieved taxpayers would necessarily have to be faced," Dr Busuttil warned.

In the meantime, Socialist MEP Joseph Muscat said the EU's warning was simply a result of the government's stubbornness.

Mr Muscat also appealed to the government to revise its position before facing repercussions it seems to be unaware of at present.

Both MEPs had assisted the Federated Association of Travel and Tourism Agents when it lodged a complaint with the European Commission about the matter.