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IMF Calls On Malta To Shore Up Tax Base

by Amanda Banks, Lowtax.net, London
31 January, 2018

The International Monetary Fund (IMF) has called on Malta to increase the tax rate applying to rental income, and to broaden its tax base, in its latest economic report on the island.

It says action should be taken to deal with rising property prices, which have been fueled by the extension of the first home buyers stamp duty relief, the reduced tax rate on rental income, and Malta's citizenship investor program. To cool the property market, the IMF recommends aligning the tax rate on rental income with tax rates on other sources of income, and targeted limits for mortgages to strengthen the resilience of banks and households to possible housing price corrections and higher interest rates.

The IMF says that while Malta's economy is the fastest growing in Europe, its share of corporate tax revenue to total revenue is much higher than in other EU member states. With a large presence of foreign-owned firms and possible future changes in international corporate taxation, Malta's revenue base is exposed. To address this exposure, the IMF recommends further broadening the island's tax base and increasing revenue collection, including by strengthening VAT compliance.

The IMF praised recent measures Malta has implemented to combat tax evasion and avoidance, such as establishing the Joint Enforcement Unit, strengthening IT systems to monitor tax compliance, and consolidating, streamlining, and automating the services of the revenue departments.

Looking ahead, the IMF said the risks to Malta's economic outlook are broadly balanced, but that weak growth in advanced economies, policy, and geopolitical uncertainties, and increasingly inward looking policies, including in the context of post-Brexit arrangements, could undermine cross-border trade, confidence, and growth.

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