The government and the Opposition consider the way Malta taxes income and profits of direct foreign investment as legitimate fiscal competitiveness. Some influential international organisations take a very different view. They describe the island as a tax haven because of its “lax” tax regime.

The latest organisation to consider Malta as a tax haven is Oxfam, an NGO confederation that works to end injustices that cause poverty. Oxfam goes further and insists that the island, together with Ireland, Luxembourg, the Netherlands and 35 non-EU countries, should be included in the EU tax haven blacklist.

Should Malta worry about this negative assessment of its taxation system?

Both sides of the House of Representatives sing from the same hymn sheet when they insist that Malta is not a tax haven. One reason brought forward is that its taxation system was approved by the EU when the country became a member state. Another argument is that the fiscal regime is one of the few resources Malta has to gain a competitive advantage over larger countries that have more diversified economies.

Malta’s economic and employment dependence on foreign companies attracted by our tax competitiveness has grown to the extent that a reversal of favourable taxation measures could bring significant adverse consequences.

Defining what constitutes a tax haven is at times subjective. Tax transparency and policies that stimulate large-scale profit shifting are two factors the EU considers to identify which countries should be included in the blacklist. Many large EU member states and international organisations shun tax evasion and avoidance.

Oxfam is, understandably, concerned by the fact that the Maltese presidency of the EU earlier this year advocated for an empty blacklist. Some major EU member states share this concern because they feel the pinch of companies using Malta’s favourable fiscal legislation to avoid paying higher taxes in the countries where their business turnover is generated.

Malta’s inability to convince other member states that its fiscal regime is transparent and not open to severe abuse is often attributed to a light-touch approach to enforcement of legislation by regulators and the tax authorities.

Incidents reported in the international media of alleged money laundering and tax evasion by some foreign companies based in Malta, especially in the gaming and financial services sectors, have magnified the perception that Maltese regulators do not care much about law enforcement and controlling abuse.

The Panama and Paradise papers sagas, the involvement of politicians as directors of locally-based financial services companies that found themselves in deep trouble, the apparent conflict of interest of senior officials of regulatory bodies who are also involved in businesses in other jurisdictions and the Libyan oil smuggling incidents are realities that must be addressed with urgency. Failing to do so will perpetuate the belief in the minds of some foreign politicians, international organisations and media that Malta is de facto a tax haven that tolerates abuse of its legislation.

One can understand the determination of Maltese politicians to defend the status quo on grounds of ‘economic patriotism’. But now a more realistic approach is needed.

Rigid enforcement of gaming and financial services legislation is an excellent starting point. Malta should also have a Plan B that contemplates a reducing dependence on tax competitiveness as a sustainable critical success factor.

This is a Times of Malta print editorial