The government was determined to make a reality the electoral promise to reduce the taxation rate made by the previous Nationalist government in 2008 but which never materialised, Finance Minister Edward Scicluna said.

This would be done through a clause in the Budget Implementation Bill, which is being debated in Parliament at committee stage.

However, the PN’s spokesman on finance, Tonio Fenech, objected to the fact that the tax reduction would not be extended to profits on dividends, saying this would discriminate against middle income earners.

Under the clause as it stood, company owners would convert profits made from dividends into higher salaries for directors so as to pay less tax. The clause did not give a lot of leverage on leakages. Losses would be compensated through increased revenue resulting from economic activity, Mr Fenech argued.

The Nationalist government had made the tax reduction proposal with no strings attached but it was now being limited. The Opposition would oppose this clause because the government was limiting the benefits from this measure.

Prof. Scicluna disagreed with Mr Fenech, saying the government had to protect its revenue as there was no scientific proof of the amount of profit accruing from dividends to individuals and business entities.

Losses would be compensated by increased economic activity

The reduction of tax was still in its first stage and in future the government would be ready to lower it on dividends from 35 to 25 per cent in a prudent way so as not to endanger government revenue.

Earlier, Mr Fenech had said that the Opposition felt so strongly about the clause that were it not for the fact that a number of government members were absent due to health reasons, following the Żurrieq incident, it would have called a division.

But the Opposition did not want to be accused of taking advantage of the incident and he wished all those affected a “get well soon”.

Government whip Carmelo Abela and committee chairman Luciano Busuttil joined Mr Fenech in extending their good wishes.

The government and Opposition also diverged on a clause under which a 15 per cent instead of 35 per cent tax rate would be applied on renting of residential property. Prof. Scicluna said there was a lot of abuse in the leasing sector and the measure was aimed at encouraging renting of property for residential and garage use.

Mr Fenech argued the clause should include a similar tax rate on leasing of commercial property because the loss in taxation would not be substantial and could be compensated with more people declaring such income. Prof. Scicluna said this was an issue of equity in taxation principles, while Mr Fenech said that the measure would create distortion in the lease-of-property market.