National reform programme 2008-2010 Malta - European Commission

Implement changes to the tax and benefit system to make working more attractive.
During the NRP 2005 – 2008 programming period, the Government of Malta amended current
income tax provisions with a view to make work more attractive. The main changes to
taxation policy is summarised below:
• Tax credit (Women Returning to Employment) Regulations, 2005 - where female
returnees to the labour market will benefit from a tax credit set off against the tax in
respect of gains of profit from the said employment;
• Part-time Work (Amendment) Regulations, 2005 - these provisions have now been
extended to married couples. This measure complements the introduction of the
register for part time employees introduced in early 2008;
• the revision of income tax bands in budget 2008 - tax bands have been revised with a
view to provide a greater incentive to those who wish to work;
• recognition of men/women working within a family business - men/women working in
their family business will be allowed to be registered on the company’s books and thus
have the opportunity to enjoy social benefits while also being entitled to a pension on
payment on their social security contribution;
• Tax deduction for use of childcare services. Government shall allow parents to deduct
Lm400 (€931.75) from the taxable amount to make good for part of the expenses
incurred in licensed childcare services. In those cases were employees receive
payment from their employer for expenses related to childcare services, such payments
shall no longer be considered as fringe benefits and will therefore no longer be taxable.
In those cases where employers pay their employees for expenses related to childcare
services, such expenses are considered as business costs and therefore are deductible
from taxable income;;
• change in computation system of social security contributions for part-time employment.
In order to make part-time work more attractive, Government has adjusted the social
security contribution paid by part-time employees for whom such employment is their
main job and has also introduced benefits on a pro rata basis.
In addition to the measures already introduced, Government also plans to introduce further
reforms in the taxation framework in order to stimulate economic growth and increase the
attractiveness of work.
A primary measure which will be introduced in the coming years is the revision of the income
tax rates. Government plans to further widen the tax bands as a continuation of the measure
introduced in Budget 2008. The thresholds of when tax is paid at 15% and 25% will be
raised. As a result the number of persons who do not pay income tax will increase as will
those who pay 15% instead of 25%. The widening of the 15% tax threshold is a measure that
is expected to impact around 75,000 taxpayers. Moreover the maximum tax rate of income
tax will be reduced from 35% to 25% for those earning up to €60,000. Initial projections point
out that there are around 21,300 taxpayers who would potentially benefit from this measure.
Another taxation measure which is aimed to contribute towards increasing productivity and
growth is the removal of the €23 departure tax. This impacts all travellers but it is also an
increased cost for business since all business travellers have to bear the burden of this tax.
The number of departing business and professional persons in 2007 (NSO) amounted to
98,800. This measure is expected to cost Government €2,272,400.
Malta National Reform Programme 2008-2010 - 38 -