GOVERNMENT PLANS TO SHIFT TAXATION FROM DIRECT TO INDIRECT
October, 08th 2013
On 1 October, the Finance Ministry formally submitted to the European Commission an Economic Partnership Programme (EPP), together with a Report on Effective Action, which outline the Government’s plan to close 2013 with a general government deficit below 3%.
In its report, the government speaks of plans to continue shifting taxation from direct to indirect over the medium term.
The report says that further to the revisions in the income tax regime in recent years, the 2013 Budget provided for the widening of the income tax bands for single and joint tax computations, and for parents supporting minors who are not gainfully employed. However, this will be implemented gradually in a manner that will limit the expansionary impact on public finances which will amount to 0.17 per cent of GDP in 2014.
For the period 2013 to 2016, the gradual losses from the revision in the income tax regime affecting direct taxation will be offset by similar gradual revisions in indirect taxation planned in the context of the budgetary exercise for the upcoming year. Moreover, revisions to the VAT legislation are currently ongoing, the report says. These will empower the minister responsible for finance to revise as necessary the penalties and interest payable on taxation due in order to increase tax compliance and ease the recovery of amounts due.
The Economic Partnership Programme (EPP) is divided in two main chapters. The first chapter presents the Government’s key policy planks which represent the crux of the Government’s fiscal and economic strategy and which also correspond to the Country Specific Recommendations (CSRs).
Furthermore, the fiscal framework underpinning the overall strategy is laid forward. This fiscal framework will ensure that Malta moves towards fiscal consolidation and achieves fiscal sustainability. The second chapter lays forward the necessary measures and reforms taken by the Malta Government in all sectors of the economy to ensure that Malta will exit the excessive deficit procedure permanently.
The main economic and fiscal measures proposed include: the diversification of energy sources and the restructuring of the energy corporation (Enemalta); the restructuring of Air Malta; the Pension reform process including the proposed introduction of the third pillar pensions; reforms underway in the health sector; further investment in education; as well as measures to reduce the poverty trap and therefore encourage people to get into employment rather than stay dependent on social benefits.
Other important measures included under the EPP are measures to increase competitiveness through diversification, through incentives and programmes aimed at SMEs and other businesses and through various other reforms, including the holistic Justice reform.
The Report on Effective Action focuses on providing a quantitative analysis on how the Government will reduce the deficit-to-GDP ratio below the 3% threshold.