Introducing a Value Added Tax in Malta

Abstract

Malta's application for full membership with the European Community (EC), implies an extensive revision of the current indirect tax system, so as to conform with the EC' s VAT system. Besides, Government has now publicly announced that VAT will be in place by 1994, irrespective of EC membership. However, no details have been as yet disclosed. The major economic reasons for adopting a VAT are revenue, neutrality and efficiency. However, the ability to exploit these favourable attributes depends, to a great extent, upon the choice of the particular form of VAT. Ideally, VAT should be extended up to the retail stage, with no exemptions and employing only a single rate of tax. However, in practice no country has achieved such a perfectly broad and neutral VAT because of social, economic and administrative constraints. As a result, deviations from this simple structure are necessary.