Malta’s tax regime is again under the scrutiny of international institutions and certain politicians in the European Union and the US. The economic success of this country has wrongly been attributed to a lax taxation regime, seen as helping wealthy individuals and businesses pay as little tax as legally possible.

Some EU politicians, including MEPs, view Malta’s tax system as unfair because it deprives other Member States of tax revenue that is rightly due to them. The latest attack comes from German regional minister Norbert Walter-Borjans, who said he had information regarding 70,000 “offshore” companies based in Malta. Calling Malta the “Panama of Europe”, he warned that “tax evaders” and “tax tricksters” could no longer count on doing what they were doing undetected.

Finance Minister Edward Scicluna has called the claims “grossly misinformed”, adding: “Pull another one”. Since when, he asked, disputing the figure given, has the whole Maltese company register become foreign, offshore and German. Opposition leader Simon Busuttil strongly rebutted the claims as well, insisting that Malta does not have the offshore companies and structures mentioned by the German minister.

Busuttil added, however, that Joseph Muscat’s turning of a blind eye to the behaviour of Konrad Mizzi and Keith Schembri – both severely compromised by the exposure of their financial structures in Panama – has put Malta in a weaker position to defend its name.

He is right. These cases, and the more recent revelation that Schembri and his auditor and OPM consultant Brian Tonna are suspected to have committed financial crimes without any action being taken against them, only fuel a feeling that Malta encourages tax evasion and avoidance, and possibly worse.

Many local financial practitioners view some politicians in both Europe and Malta as behaving badly. But they also insist that Malta’s tax regime, like that of other EU jurisdictions, including the Channel Islands, Gibraltar and Luxembourg, does not promote tax evasion or money laundering. They fret about the damage being caused to the industry by the onslaught of bad news.

This does not mean, however, that the interaction between financial services practitioners, some of their clients and the regulators is well oiled and does not need an overhaul. There have been some very extensively reported abuses by certain clients, probably with the knowledge or at least the acquiescence of their financial advisers. The regulators’ light touch approach in the implementation of anti-financial crime procedures does not boost the image of Malta as a reputable financial centre.

An overdue shakeup is needed to put our house in order in the financial ser­vices sector without Malta giving up its right to use its favourable tax regime as a competitive advantage. In the midst of a very intense political campaign, it is encouraging that both poli­tical parties are defending Malta’s right to determine its fiscal policies without outside interference.

But to succeed in this important mission, Malta needs to strengthen its poli­tical will to weed out any illegal practices that would inevitably tarnish our image in international fora. Our leaders must set the example by not tolerating financial crime in their own backyard. And regulators must have a zero tolerance policy towards rogue operators and clients who are only interested in enriching themselves at the expense of the country’s reputation.

The time may also be right to understand the growing averseness of US and EU banks, regulators and political leaders to tax avoidance, which was tolerated up to some time ago but which today is being equated with tax evasion. This understanding should lead to a more refined strategy on how to attract to Malta bona fide businesses that are not just after paying as little tax as possible.

One can argue at length as to why Malta is attracting such negative press because of its tax regime. While we are no Panama of the Mediterranean, we  certainly do need to improve our processes to shore up the foundations of our financial services industry.

For obvious reasons though, there have to be serious doubts about whether a Labour government led by Muscat would even have the desire to undertake such a task. More trustworthy would be the PN, under whose administration the financial services industry was deve­loped on a sound footing and whose leader has been hammering on the need for proper regulation and enforcement.

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