Income tax developments following Malta's accession in the EU

Abstract

Income tax is an area of on-going work and research, taking into account and trying to anticipate the dynamic evolution, most importantly, of the local economic development, but also of the international economic, financial, technological and social progress. The issue of paying taxes is clearly a heated debate given that our social system demands individuals within societies to contribute towards the common good by way of paying taxes. On the other hand, everyone is aware that paying taxes is inevitable as tax proceeds is essential in the funding of government expenditure. The ever-increasing globalization of economies and the rapid fiscal developments may influence the nature of economic structures and systems both locally and internationally, calling for immediate and long-term measures to be recommended and acted upon mostly in the financial and taxation fields. Such fiscal areas are indispensable tools that generate the necessary revenues required by a country to sustain its development, health and education systems, and are direct resources to the country's investment requirements. Theoretically, taxation is defined as "the unrequited transfers of resources from the economy to Government, primarily on the basis of income, expenditure and wealth." Although it may be argued that income tax may be extremely complex, requiring detailed record keeping and lengthy and complicated instructions to the taxpayer, it is unarguably an indispensable tool for a modern nation to function. Observably, the Governmental Authorities have to strike a balance between the fiscal needs of the country and the principles of fairness and equity so that taxation would not distort economic growth or discourage work. This thesis shall attempt to analyse the recent developments that Malta had to go through post-accession to the European Union, that reflected the challenges and opportunities posed by the European Union, and the international market in the field of taxation. Furthermore, this study shall also endeavor in examining the amendments that the legislator had to enact so that Malta would be in conformity with the developments in the European Union and the progress achieved in the field of tax harmonization, particularly in the area of direct taxation. These developments are also followed by examining whether tax benefits and fiscal incentives existing prior to the 2007 Income Tax Amendments were in conformity with the European Union prerogatives, and what reforms were to be made so that Malta would be in line with European Union Directives, with the European Court of Justice authoritative decisions and conclusions set out by the Council of Economics and Finance Ministers.