Employers in Malta make the lowest social contributions to the country’s coffers among those in the 28 EU member states, according to Eurostat.
In a report on taxation trends in the EU, the European statistical office notes that Malta relies heavily on indirect and direct taxes and that their share of the total taxation (indirect taxes, direct taxes and social contribution in a ratio of about 2:2:1) is above the EU average. Direct and indirect taxes represent about 40 per cent each of total taxation.
At six per cent of GDP, social contributions in Malta yield little revenue considering that the EU-28 average stands at 12.7 per cent.
“In terms of social contributions, employees contribute less than the EU average while employers contribute less than half the EU average,” it states.
The report, also shows that the tax-to-GDP ratio (including social contributions) in Malta rose to 33.6 per cent in 2012 (EU-28 average 39.4 per cent); 0.6 per cent over the previous year. A decade earlier, the figure in Malta stood at 30 per cent. However, although the increase in taxes may seem high over the 10-year period, overall Maltese taxpayers are still better off than their European counterparts who pay more on average.
In 2012, Malta’s tax burden was 5.8 per cent below the EU average. Even when compared to other Mediterranean countries, the report shows that Malta’s level of taxation is well below that of Italy (44 per cent) and Cyprus (35.3 per cent) but slightly higher than Spain’s (32.5 per cent).
The report notes that the amount of revenue from taxation of labour is the third lowest in the EU – 11.6 per cent of GDP in Malta against 20 per cent in the rest of the EU in 2012, “mainly due to the low employers’ social contributions”.
Malta’s largest source of revenue in 2012 was from direct taxes – almost 14 per cent of GDP – followed by 13.7 per cent from indirect taxes. In the latter, VAT contributed the most with revenue reaching 7.8 per cent of GDP.
Despite raking in more than €500 million in VAT in 2012, at 18 per cent Malta still has one of the lowest rates in the EU and is one of three countries – the others being Ireland and the UK – that is still keeping a zero rate on essential products such as food.
On an EU level, the report shows that, in 2012, the tax burden was highest in Denmark (48.1 per cent), Belgium (45.4 per cent) and France (45 per cent).
On the other hand, Lithuania (27.2 per cent), Bulgaria and Latvia (both at 27.9 per cent) had the lowest tax burden.