Assessing the Implications of the European Commission's interim digital tax proposal for the remote gaming industry in Malta

Abstract

When it comes to the digital economy, it is very clear there is currently a gap between what is currently being taxed and what should be taxed. This is the basis for the directives proposed by the European Commission (EC) in March 2018. The proposal was backed up with an Impact Assessment which carried out an analysis of the impact of such a tax on the EU member states. However, the assessment lacks the analysis with respect to particular industries. Thus, this dissertation aims at assessing the impact of a digital tax on the remote gaming industry in Malta.

The study is carried out by first looking at an analysis of the remote gaming industry in Malta together with an analysis of the taxes which are already applied on this industry. Data on remote gaming companies in Malta was gathered and a sensitivity analysis was carried out to analyse the impact of such a tax, whether it would be imposed as stated in the directive and if some aspects where to be changed. It is estimated that the impact lies between EUR 4 million – EUR 20 million. Further insights on its impact was analysed by conducting interviews with key stakeholders. Even though revenue generated from the digital tax is fairly high, a negative impact on the competitiveness of entities could arise. Threats to harmonization and double taxation problems may also rise when it comes to determining the taxable base and levying the tax.

The conclusion of this dissertation is that a global solution is needed in order to keep the integrity and consolidation of the market. However, if Malta were to opt for a digital tax, it would be the most beneficial to opt for a single flat rate tax with a high threshold that excludes the smaller companies which generate the lower revenue. This is in line with the EC’s interim solution proposal.