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SPEECH BY THE HON. JOHN DALLI, MINISTER OF FINANCE, DURING THE Seminar ORGANISED by the Malta Institute of Taxation
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05/10/2001
05/10/2001
Ladies and Gentlemen,
| I accepted with pleasure the invitation extended to | me by the Malta Institute of Taxation to address this seminar. This initiative is indicative of the active interest there is in the financial sector and in the business field in general. The various speakers will deal with very important topics regarding both domestic and international tax issues. In the circumstances, I thought it would be opportune that in my brief address I should concentrate on certain initiatives underlying Government policy on domestic and international tax matters. |
| The year 1994 is largely remembered for the extensive | changes that were introduced to the Income Tax Act with a view to complementing the wide ranging legislation that was introduced at the time for the international business and financial services sector. However, other very important changes were introduced in 1994 affecting purely domestic tax matters. In fact, 1994 marked also the advent of the 15% withholding tax in respect of certain investment income. The objectives of Government in introducing this withholding tax were to facilitate tax collection and to encourage the repatriation of Maltese wealth. To achieve the latter objective, Government ensured that such investment income would not be reported to the tax authorities once it had suffered tax at source. |
| This measure had the desired effect since substantial | amounts of money flowed back to the Island without creating problems for all those who repatriated their money. Although the measure somehow achieved the objective we set, we know that there are still huge amounts of money invested outside Malta that are not being declared for tax purposes. I shall deal with this matter later on in my address. |
| Government’s direction was clear as far back as | 1994. As far as possible, we should start moving to voluntary compliance particularly through the availability of systems of collecting tax by withholding at source. Such efficient and effective means of tax collection also make it possible to Government to reduce the effective rate of tax on the relevant income as was the case of investment income where the maximum rate of tax payable was reduced from 35% to 15%. I must also observe that the policy of final withholding at source was reinforced along the years through the introduction of the Final Settlement System and the extension of the withholding tax on investment income to the insurance and funds industry in Malta. |
| At this point, I would like to dwell on the | introduction of the Investment Registration Scheme that has been recently announced. This is yet another opportunity given to Maltese investors who may still hold unregistered assets outside Malta to regularise their position with the tax and the Central Bank authorities. In a scenario where global cooperation in tax matters is being actively pursued by many countries and international organisations, it seems inevitable that there would eventually be free flow of information between tax authorities. What is not known today to the Maltese tax authorities may be easily available in a couple of years’ time. The Investment Registration Scheme provides the ideal opportunity for defaulters to regularise their position. Under the Investment Registration Scheme, it would be possible for assets retained outside Malta to be repatriated and integrated under the Maltese withholding tax system without being reported to the Maltese tax authorities. I must emphasise, however, that this scheme is only intended to regularise past misdemeanours in relation to income tax and exchange control but will not give any protection to anyone who was involved in money laundering practices. Such protection to money launderers was never intended to be given and will never be given by my Government. |
| As has already been indicated, Government's policy is | directed at systems which facilitate voluntary compliance by taxpayers. In this regard we have moved from a revenue-assessed system to a self-assessment system. Under this system, taxpayers are now practically responsible for declaring, assessing and paying the tax in the relevant time-frame laid down in the legislation. In this connection, I would also like to mention that we have developed benchmarks for various trades and professions that are based on reliable information available to the tax administration. These benchmarks will be a useful tool to combat tax evasion. |
| As I have repeatedly stressed on various occasions, | the benchmarks are not meant to be used for the indiscriminate issue of ex-officio assessments. They are only meant to discourage taxpayers to make incorrect declarations of tax and to provide a useful tool to the tax administration to pick up those cases where tax declarations appear to be particularly suspect. |
| We have to be constantly vigilant in our fight | against tax evasion but this does not mean that we shy away from introducing measures to assist business and particularly small businesses. The Business Promotion Act attests to this. If necessary, we are prepared to introduce other measures to assist small business but we have to ensure that any new measure will not be abused for tax purposes considering that it is the responsibility of the taxpayer to self-assess tax. We have to look for systems that ensure compliance with the law and administrative practice in a manner that is resource efficient for both the taxpayer and the tax authorities concerned. We harbour no illusions. Whatever we do, we know that there will always be those who try to abuse the system. This is why we set up the Tax Compliance Unit. The Unit has the responsibility to carry out the necessary investigations on those cases that look particularly suspect to the tax administration. Taxpayers who continue to abuse the tax system cannot expect leniency if they are investigated and it is proved that they have evaded tax. |
| Turning to international business matters, I would | like to assure the market that we intend to continue to be of service to the sector. Where necessary, we will introduce measures that will meet the legitimate requirements of the sector. We will also strive to expand and improve our tax treaty network. In international tax matters, the most important development that has occurred since 1994, concerns the OECD project on harmful tax competition. Malta’s tax legislation was closely scrutinised by the OECD and nothing particularly objectionable was found regarding the taxation system as such. However, in the course of this exercise the Maltese Government recognised that the international tax scenario, especially regarding exchanges of information, transparency and ring-fencing of activities, was changing and agreed to give certain commitments to the OECD. In the address that I made during the third meeting of the Global Forum Working Group on Effective Exchange of Information held recently in Malta by the OECD Secretariat, I made it clear that Malta recognised that it still needs to adjust its legislation in certain areas to upgrade its profile and to honour the commitments that were made. However, I emphasised that we are only prepared to implement the required changes once we are assured that we will be playing on a level playing field with all other jurisdictions. We are simply not going to sacrifice the competitiveness of the Maltese product. |
| In the meantime we will support the development of | other legislation that the market feels is necessary to compete in today’s world and that is in line with Government policy. |
| However, in whatever we do we cannot ignore today’s | international pressures and we therefore have to ensure that any legislative changes would be defensible from an international perspective. |
| Finally I would like to congratulate the Institute | for organising this seminar which will definitely contribute to the further education of the Institute’s members on tax matters and to create awareness on certain problems of a global nature which in today’s world call for a global solution. |
Thank you.
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