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Malta's tax increase twice as high as EU average

But total burden still lower than EU

Maltese workers saw their tax burden rise by almost twice the EU average over the past decade, according to a new study by the European Commission.

The research – ‘Taxation trends in the EU’ – shows that while taxes amounted to 31.6 per cent of GDP in 2005, they hit 33.7 per cent in 2015.

In the 2005-2015 period, Malta’s tax burden as a percentage of GDP rose by 2.1 per cent while the EU average was 1.2 per cent.

However, the tax burden in the EU is still much higher than the one in Malta, and stood at 38.7 per cent of GDP in 2015.

The study also shows that, contrary to the trend in modern economies, Malta lately became more dependent on direct, rather than indirect, taxes.

The tax burden in the EU is still much higher than the one in Malta, and stood at 38.7 per cent of GDP in 2015

Direct taxes – mostly consisting of automatic payments to the exchequer from wages and salaries – and national insurance contributions increased by 6.8 per cent in the period under review as a percentage of all taxes collected. This was by far the biggest increase in the EU when compared to the trend in the other 27 member states.

Between 2005 and 2015, the share of direct taxes in the EU as a percentage of all levies collected grew by 0.3 per cent. In Malta, income from indirect taxes – consisting mainly in levies and taxes on consumption such as VAT – dropped by five per cent in the same period.

In the EU, this was up 0.1 per cent.

Economists said the increase in direct taxation over revenue from indirect taxes was the reversal of a trend that started years ago.

“With the introduction of VAT some two decades ago, Malta had to make a shift from direct to indirect taxation. This trend has somehow been reversed in the last years,” they said, adding that tax on consumption was more socially just because those who earned most and, consequently, spent more, paid higher taxes.”

The increase in direct taxation over revenue from indirect taxes was the reversal of a trend that started years ago

Higher dependence on direct taxes meant taxes were derived mainly from salaried workers, the economists noted.

Although the construction industry is considered to be a pillar of Malta’s economy and property is going through a boom, its contribution to taxation is among the lowest in the EU.

In 2015, only 1.2 per cent of GDP were generated from taxes on property, mainly from the sale and transfers of property titles.

Unlike the other EU countries, Malta does not charge any recurrent taxes on immovable property and real estate, which normally depends on the value of the property.

In 2015, Malta raked in some €3 billion in taxes.

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