Higher tax revenue attributed to growing economy

Malta registered the highest increase in proceeds from taxation in the EU over the past decade but figures show the Maltese remain among the lowest taxed EU citizens, according to statistics issued in Brussels.

The Maltese people are still enjoying low labour taxes and, at 18 per cent, the VAT rate is one of the lowest in the EU, the Eurostat publication, Taxation Trends In The EU 2011, notes.

The report shows that while Malta increased its tax revenue by six per cent of GDP between 2000 and 2011, the EU’s average dropped by 2.1 per cent in the same period. However, while this year taxes in Malta amounted to 34.2 per cent of GDP, the EU’s average was higher at 38.4 per cent.

Eurostat sources said Malta’s surge in revenue from taxation did not really reflect higher taxes paid by workers on their work because this actually decreased.

“It seems the surge in taxation revenue in Malta is the result of its growing economy with more sectors contributing towards the country’s coffers. The shift has been to tax more consumption and tax less labour and it seems this formula is, so far, working,” the sources said.

According to the study, Maltese workers are paying much lower taxes than their European counterparts. In 2009, the latest available data, Malta’s implicit tax burden on labour – a broad measure of the average tax burden on work income – stood at 20.2 per cent, meaning that an average Maltese worker was contributing a fifth of his/her total earning to the state. This was among the lowest in the EU where an average EU worker contributed 32.9 per cent of his total earnings to the state.

Compared to 2000, taxation in Malta on labour dropped slightly by 0.4 per cent. On the other hand, consumption in Malta is leaving more money in the state coffers. As consumption in the past years increased substantially with importation levels reaching record highs, in 2009 Maltese consumers paid an average of 19.5 per cent in taxes on all the items and services they bought. This is an increase of 3.6 per cent on 2000.

One of the main reasons contributing to this shift was the higher VAT rate, up to 18 from 15 per cent in 2004. Yet, Malta is still considered to have one of the lowest VAT rates in the EU. The average VAT rate in the 27 member states this year stands at 20.7 per cent.

Malta has the second lowest VAT rate in the EU after Cyprus and Luxembourg (15 per cent). The highest VAT rate is paid in Denmark, Sweden and Hungary, at 25 per cent.

According to Eurostat, the most taxed EU citizens in 2009 were the Danes, with tax revenue of 48.1 per cent of GDP, followed by Sweden at 46.1 per cent. The least taxed country was Ireland with 28.2 per cent of GDP coming from taxes.