The 5% tax rate turns Malta into a magnet for rich people and legally enables them to pay a lot less in tax than they would be required to pay in their own countries.
by Joseph Abela
Since 2007 large multinationals with branches operating in Malta have received tax rebates resulting in their tax rate effectively going down to only 5%. This policy is lauded by the PL and PN as attracting more foreign investment. However, the reality is not as bright. The 5% tax rate is one of the things that make Malta the ideal country for rich people to set up offshore accounts which legally enable them to pay a lot less in tax than they would be required to pay in their own countries.
Large companies and wealthy individuals are using Malta to literally rob their own people from more investment in their country’s welfare. While tax avoidance using offshore accounts is perfectly legal it is without doubt a practice void of any morality and rooted in greed. When some people are faced with these facts they retaliate that if we don’t do it another country will. However the fact remains that even we, the Maltese tax payer, are also being robbed.
Consider a Maltese citizen who earns a little over 9K annually. This person has to pay 15% income tax. At the same time large companies are paying only 5% over enormous annual profits. So while the economy is indeed growing, the wealthy get to keep even more of their growing profits. Meanwhile, a worker is not seeing an increase in wages and, due to laissez-faire policies in the housing market, he may also be paying exorbitant rent.
Some argue that this policy creates a lot of jobs. This is not entirely true. As Paradise Papers reveal, it is possible to open a shell company in Malta and, without employing a single worker, wealthy individuals can collect all the earnings via it. This was the case of Lewis Hamilton. Such cases prove that it is the tax avoider who benefits most since the Maltese state is only taking 5% of his profits without a single job being created.
Many of us tend to feel offended when our country is called a tax haven and retaliate with the argument that other countries do a similar thing and are just jealous because we do it better. While this is not factually incorrect, the argument is a contorted one. Countries like the United Kingdom and the Netherlands attract a large portion of money from corporate tax avoiders and they do not get investigated by MEP’s with equal scrutiny as is Malta. This, however, has nothing to do with the social injustice perpetuated by these schemes. While the small robber may not rob the amounts that the bigger robber does, both take that which is not theirs. If we respect one another we should address the fact that with all the economic growth there are still people in our country who are living in poverty.
By choosing not to tax the wealthy appropriately, Malta is going against the basic principles of social justice. While as a nation we have an adequate welfare state, there are still people who are being abandoned by the system. The fact that the government is more prepared to make quick money through this scheme, than collect more tax which can be invested in social policies, shows a skewed sense of priorities.
This is just one piece of evidence that points to the fact that Malta’s working class is not represented by the two major parties. Instead, the parties represent the interest of local businesses such as the construction industry and foreign industries such as the financial services and gaming. This is true about the majority of governments worldwide. In the current neo-liberal system, short-term profits are the main goal of every government.
The market is left to manage itself even if it takes huge risks that may lead to its downfall. In fact, the economic crisis of 2008 started from the burst of the housing bubble and spread due to the speculations of an overly ambitious financial services industry (such as the unregulated derivative market). It is clear that the current system is unsustainable.
While policies such as Malta’s corporate tax refund are highly profitable in the short-term, they enable a culture that promotes social irresponsibility for the elite classes worldwide. When we read stories locally about people living in poverty, about migrant workers being exploited, we should always remember that our government is actively helping the global elites to pay less tax both in their home country and in Malta. When we hear buzz words such as “GDP growth” and “surplus” we should keep in mind that, ultimately, we are building our economy on corrupt foundations which favour the select few.