Departure tax still 'a problem' for EU

The government's announcement during the last Budget speech that the controversial departure tax will be halved as from July 1 does notseem to have had any effect on European Commission's stand on the issue. Sources close to the Commission told The Sunday Times that Brussels will continue to maintain that the tax is discriminatory and will have to be removed altogether.

According to the Commission, the fact that the tax has been reduced is not relevant to its discriminatory aspect.

"The level of a tax as such would not make it discriminatory or non-discriminatory. It is the construction of a tax and the exemptions from it that would make it discriminatory," a Commission spokesman told The Sunday Times.

He also revealed that Malta has just sent in its reply to the Commission's letter of formal warning, the first stage of legal proceedings, sent last July.

"After examining the response to the letter of formal notice, the Commission will decide whether to issue a reasoned opinion."

The departure tax in Malta was introduced in two stages over a period of eight years. It was first introduced in 1997 and then doubled in 2005.

Following various complaints, including from the travel industry, the European Commission last July decided to start legal action against Malta as it considered that the tax is not compatible with EU rules, particularly to free movement of services.

In its letter of formal warning, the Commission argued that the tax is discriminatory as it is not levied on domestic flights and it is not based on the cost of providing a service.

"Since the passenger service charge is not based on the cost for providing services to the passengers it appears to be discriminatory and contrary to Article 3 (1) of regulation EC 2408/92 in so far as it is applied to some of the passengers of Community air carriers operating on intra-Community rules but not to passengers of domestic flights between Malta and Gozo."

The Commission also charged that the departure tax goes against Article 40 of the EC treaty as it "constitutes an unjustified restriction on the provision of other services".

According to Brussels, the current structure of the departure tax appears to restrict services which involve the travel of a resident in Malta to the territory of another member state services such as tourism, education and medical assistance.

The Commission is also maintaining that the tax restricts services supplied by a provider established in Malta who travels to other member states to deliver services such as professional services.