An aggressive tax cut for the self-employed proposed by the Nationalist Party could help combat tax evasion, according to economist Lino Briguglio.

However, he also warned of the possible hole in public finances the measure could leave unless it was accompanied by strong procedures to curb abuse.

The PN has made a 10 per cent tax on profits up to €50,000 the cornerstone of its proposals to give small and medium enterprises a boost. Companies are currently taxed at 35 per cent, and income declared by the self-employed falls within the progressive income tax regime for personal income.

Though the PN document is called ‘A policy for retailers’, the reduced income tax would benefit the self-employed and companies identified as SMEs, according to the explanatory annex.

It quantified the impact of the measure on public finances at around €85 million, claiming it would benefit 7,000 people. The PN pledged it would introduce the measure in its first Budget if elected. The €85 million is more than double the impact of the income tax reduction to 25 per cent from 35 per cent for those earning less than €60,000.

The income tax cut, which was implemented in 2013, cost public coffers some €40 million in lost revenue and was spread out over three years to allow the economy and public finances to adjust.

But Prof. Briguglio said the proposal could serve as an incentive for the self-employed and small companies to move out of the shadow economy. “There is a great temptation in these sectors to evade taxes, and a more advantageous regime may make it not worth taking the risk,” he said.

“The government has fiscal obligations to live up to, including reducing the deficit and keeping debt in check, but such a tax cut could lead the government to collect more money in the long run since more people would declare their income,” Prof. Briguglio said.

Paul Abela, president of the Chamber for Small and Medium Enterprises (GRTU), said it welcomed the proposal. “Every government has abandoned the retail and wholesale sectors but this measure will give them a boost.”

Mr Abela said most of the self-employed and small companies that would be targeted would re-invest the savings from this measure in their businesses.

“The 7,000 figure represents only retailers, but there are many more self-employed people who would benefit, apart from other small and medium enterprises,” Mr Abela added.