It would make sense for Malta to shift its taxation from one based on transactions to a recurrent levy on land and buildings, according to the European Commission.
According to a new study published by the EU executive yesterday, ‘Tax reforms in EU member states in 2015’, Malta is the only EU member State that does not have any recurrent tax on property.
Noting that property tax systems relying heavily on transaction taxes offered scope for reform as they might cause distortions in the property market, the Commission cited Malta as an example where reform was needed.
“There needs to be a shift away from transaction taxes towards recurrent property taxes. This would maintain a constant level of revenue while reducing the distortions caused by transaction taxes,” the report said.
Apart from Malta, the Commission also identified Belgium, Germany, Spain, Croatia, Luxembourg and Portugal, which also “appear to have, to varying extents, scope of this type of tax shift”.
Owners pay tax according to the value of their immovable estate
Malta’s only property taxes affect transfers of property whereby buyers are usually bound to pay stamp duty based on the value of the property. On the other hand, sellers, particularly speculators, have to pay capital tax on the profit made when negotiating property.
Brussels said that, in 2012, property taxes in Malta contributed to less than one per cent of GDP and the figure rose to over two per cent of GDP in the EU.
Though the EU has no say in taxation, its suggestion comes a few days following hints by the Prime Minister that some changes in the taxation regime regarding property are being considered. Following a meeting with the Malta Developers Association last week, Joseph Muscat said the government was bound to explore what incentives could be offered to put dilapidated buildings back onto the market.
“The forthcoming Budget might be a good opportunity to roll out a wide-ranging consultation process to evaluate what kind of measures the government could take”, Dr Muscat said in reaction to an MDA proposal to adopt a carrot-and-stick approach to address the high amount of vacant properties.
Property tax is common in the EU and is concerned mainly with the collection of annual taxes on immovable real estate.
Approximately 66 per cent of property taxes in the EU are of a recurrent nature, where owners pay tax according to the value of their immovable estate.
There are significant variations in recurrent property tax rates in the EU with the highest in the UK (3.4 per cent of GDP), Denmark (2.4 per cent of GDP) and France (2.1 per cent of GDP).
All EU countries, except Malta, impose one or more taxes on property, which can vary from calculations based on surface area, value, age of the property or status as a second home.
Proceeds from these type of taxes are usually split between national, regional and local authorities.
‘Piecemeal amendments’
The Notarial Council welcomed the extension of the time limit to register promise of sale agreements under the first-time buyer scheme.
But it criticised the government for “eleventh hour” and “piecemeal amendments” and said it would have made more sense if the Finance Ministry took the council’s suggestions two years ago.
In a statement, the council said it had been “incessantly” requesting the government for an extension since the launch of the first-time buyer scheme in 2013.
“The council notes with much regret that had [its] sensible proposal not been brushed aside and dismissed at its first and subsequent requests, these piecemeal amendments and staggered extensions granted at the eleventh hour would have been avoided and ensured a smoother and clearer process for notaries, banks, the Inland Revenue Department and, ultimately, first-time buyers themselves”.
Last Friday, a day after a meeting between the Prime Minister and the Malta Developers Association, the government announced an extension for the registering of promise of sale agreements under the scheme until the end of November.