Highlights The measures announced tonight by the Minister of Finance in the budget speech for 2014 include: Reductions in W&E rates as from March 2014 for individuals and as from 2015 for businesses Widening of income tax free bracket and conditions for parent rates tax computations Enhancing the tax benefits to income derived from part time work One time exemption from stamp duty on the first 150,000 for persons acquiring their first residence in 2014 Change to architect valuation system for stamp duty purposes Increase in excise duty applicable for fuel bunkering, alcohol, tobacco, fuel and cement Maximum income tax rate for chargeable income not exceeding 60,000 will be further reduced from 32% to 29% Free childcare services for working parents Introduction of an optional 15% final withholding tax on rental income Introduction of regulatory framework covering (private) Third Pillar Pensions PwC Budget 2014 Page 1
The economy in 2013 2.7% The deficit for 2013 is expected to amount to 2.7% of GDP. In 2014, the deficit is expected to reduce to 2.1% of GDP 1.3bn The visible trade gap up to August 2013 contracted by 101.3m due to a reduction in exports (13.9%) and offset by a reduction in imports (11.7%) 2.6bn Total tax revenues are expected to amount to 2,637m which is slightly below the amount budgeted in April 2013 7.1bn GDP for 2013 will exceed 7 billion for the first time representing an increase of 3.7% (in monetary terms) over 2012 1.1million Tourist departures up to August 2013 increased by 8.7% over the same period last year to 1,067,204 1.6% The 12 month moving average rate of inflation amounted to 1.6% compared to an EU 28 average of 1.9% 3.49 The weekly cost of living increase for 2013 is 3.49 per week. This increase will also be reflected in student stipends on a pro-rata basis 6.7% In June 2013, the number of people registering for work amounted to 12,758 (6.7% of the labour force) 591 On a per capita basis, expenditure by tourists decreased by 1.2% to 590.50 per person during the first half of 2013 Income Tax Income tax brackets for individuals The highest rate of tax applicable to individuals earning less than 60,000 annually is being reduced from 32% to 29%. Dividends received by individuals will be taxed at rates applicable before the introduction of the marginal tax rate of 32%. The tax free bracket applicable to parents is being exten ded to 9,800 (previously 9,300). The parent rates will become applicable to parents having children below the age of 24, under their custody if in tertiary education, including education in colleges and other educational institutions such as MCAST and ITS. The tax exemption applicable for minimum wage earners will be extended also to pensioners whose pension does not exceed the minimum wage and is their only income. The exempted amount will be increased to take into account the COLA. Tax on part-time income The 15% tax rate in respect of part-time income is being extended to apply on the first 10,000 for part-time employment and the first 12,000 for part-time self-employment (previously in all cases the limit was 7,000). PwC Budget 2014 Page 2
During the coming year we are forecasting economic growth of around 1.7% Part-time self-employed will be allowed to employ two part-timers without losing entitlement to the 15% tax rate. Pensioners who are also self-employed on a part-time basis may benefit from the 15% tax rate on a higher part-time income subject to certain conditions. Part time footballers will be taxed at a special rate of 7.5% on income derived from football. 15% withholding tax on rental income Persons in receipt of income from the rental of residential property will have the option to apply a final 15% tax on the gross rental income. However undeclared rent will be subject to a final tax of 35% on the gross rental income derived together with penalties and interest. Tax deductions An increase in the tax deduction from 1,300 to 2,000 for parents who pay fees for child care services in respect of their children. A new tax deduction for employers is being introduced regarding work placements and apprenticeships - 600 deduction for each work placement and 1,200 for each apprenticeship. A tax deduction is being introduced to encourage employment for persons aged between 45 and 65 years registered as unemployed. Employees will benefit from a tax deduction of 5,800 for the first 2 years and employers will benefit from a tax deduction of 50% on training costs incurred on such individuals up to a maximum of 400. Married women returning to work A married couple may apply for the married tax rates without taxing the wife s income, if: the wife has not worked for 5 years, and the wife is over 40 years of age, and the wife s income does not exceed the minimum wage. This benefit is applicable for a maximum period of 5 years. PwC Budget 2014 Page 3
Proposed income tax rates Tax rate Separate computation ( ) Other income tax measures Joint computation ( ) Parent rates ( ) 0% 0-8,500 0-11,900 0-9,800 15% 8,501 14,500 11,901-21,200 9,801-15,800 25% 14,501-19,500 21,201-28,700 15,801-21,200 29% 19,501-60,000 28,701-60,000 21,201-60,000 35% Over 60,000 Over 60,000 Over 60,000 The government is committed to continue the merger of the tax departments, and various simplification and legislative measures are being taken to continue this process. Government will continue to combat tax evasion and it will also introduce an informative campaign to emphasise the importance of fiscal morality. Relaxation in the legal provisions providing for imprisonment in the case of repetitive fiscal defaults. Excise duty The duty on bunkering fuel will increase by 0.35 per metric tonne. Excise duty on cigarettes and tobacco products is being increased by 6% and 9.3% respectively. Excise duty on alcoholic beverages is being increased at rates of between 2.5% and 15%, depending on the type of product. Excise duty on cement is being increased by 10 to 27 per 1000kg. Excise duty on heavy fuel oil, LPG and methane is being increased by 2 per 1000 kg whereas that on leaded and unleaded petrol, biodiesel, gasoil and kerosene is being increased by 20 per 1000 litres. Government will be introducing a new system enabling the recovery of banderol expenses. A new Investment Registration Scheme is being launched so as to allow the regularisation of undeclared assets/ funds (both locally and abroad) against a pre-determined penalty. An online reporting system is being introduced for cases of illegal employment of non-maltese individuals. PwC Budget 2014 Page 4
Stability and lack of uncertainty constitute a solid base for the country to attract further investment which generates employment Duty on Documents and Transfers An exemption from stamp duty is being introduced on transmissions causa mortis of property by parents to their disabled children subject to certain conditions. Interest payable on duty due on a transfer causa mortis will be capped to the amount of actual duty payable. A one-time exemption from the payment of duty on the first 150,000 of the price of immovable property will be granted to first time buyers acquiring immovable property in 2014. The current Government property valuation system will be amended to allow the possibility of engaging any architect to confirm that the proper duty/tax base has been applied. Stamp duty on auction sales is being repealed. Value Added Tax The system of appropriating payments to older balances is being amended such that when a VAT return is submitted within its due date together with the relevant payment, that payment is no longer allocated to the oldest outstanding balance but remains allocated to the relative VAT return to which it refers. The introduction of a tax in dispute system such that VAT payments will no longer be allocated against VAT that may be the subject of an appeal. Penalties for late filing of VAT returns will no longer be due when a VAT return is filed on time but without the relative payment. Any person who acquires a service related to immovable property and is not capable of substantiating the cost of the works undertaken will be liable to pay the VAT due on such services. Motor vehicle licence and registration taxes From 1st January 2014, the vehicle licence rates for vehicles having CO2 emissions of above 100g/km shall increase. The registration tax on certain second hand motor vehicles imported from outside the European Union, whose emissions are less than 150g/km and are less than 8 years old is being reduced. Registration tax on motorcycles having at least 250cc is being reduced by 25%. The Government is allocating 3.5 million for the purpose of refunding excessive car registration tax paid between May 2004 and December 2008. Such ex gratia refunds will be made over a period of seven years commencing in 2014. PwC Budget 2014 Page 5
Energy As from March 2014, water and electricity rates will be reduced by an average of 5% and 25% respectively. Reduction in water and electricity rates for businesses will commence in 2015. Prices for petrol and gas will remain stable until December 2013 whilst that for diesel will remain stable until March 2014. 20.7 million are being allocated to various projects in this sector to encourage energy efficiency such as intelligent street lighting and voluntary energy audits to families. Pensions and Social Security Pensions No change to the retirement age. Introduction of fiscal incentives to facilitate and promote third pillar (private) pensions. Working widows will still receive their full widow pension irrespective of their earnings and the age of their children. Currently, a retirement pension is reduced by the amount of a service pension but the first 1,266 of a service pension is not taken into account for the purpose of this reduction. This figure is now being increased to 1,466. Social Security Pensioners and persons with a disability who employ live-in carers will be exempt from paying the employers share of social security contributions. Social security allowance for children with disabilities is being increased from 16.31 to 20 per week. Investment and Financial Services Importance of the Financial Services The Government is continuing to emphasise the importance and growth of the financial services industry and its commitment to work with all interested parties to continue growing this sector in a sustainable manner. Consumer protection in financial services Government initiatives are being introduced to protect consumers of financial services including the creation of a financial services arbitrator, the drafting of a charter of the rights of small investors and of a charter for the rights of bank customers. PwC Budget 2014 Page 6
The financial services sector shall remain a key pillar for the Maltese economy. In this sector, our country has made and is continuing to be successful because we have invested in a serious manner in a solid and modern regulatory framework. We shall continue building on this for the future... Individual Investor programme Introduction of citizenship by investment programme through which the government intends to set up a National Development Fund, which should eventually contribute to social projects in housing, education and other areas. Malta as a centre for Aviation activities Continued effort to strengthen the Maltese aviation industry through the creation of an Aviation Authority, the drafting of a Civil Aviation policy and set-up of a research centre for aviation. Gaming industry The Government intends to continue working to enhance Malta s role as a hub for digital gaming activities. Film production Investment of one million Euro in setting up a film co-production company to help attract more productions to be filmed in Malta. MicroInvest Scheme MicroInvest scheme to be reintroduced offering small enterprises and selfemployed persons up to 45% tax credits on eligible investment (increased to 65% for Gozitans). Miscellaneous measures Work incentives and education Free child-care services will be provided to assist working parents. Assistance will first be provided to families where both parents work as well as for working single parents. Student stipends are to increase by 1.9% reflecting a pro-rata COLA adjustment. Stipends will also be given to students who repeat one academic year. A pilot project will be undertaken to introduce tablets for students in schools. PwC Budget 2014 Page 7
Environment The Malta Environment and Planning Authority is set to be divided into an authority dealing with planning permits and an agency for the environment. A grant of up to 900 will be given under a revised motor vehicle scrappage scheme. The amount of the grant will depend on the emissions of the new replacement vehicle. Health www.pwc.com/mt/budget2014 A study on the situation at Mater Dei Hospital was commissioned which has identified areas for reform. Grants for travel costs with respect to a parent accompanying children required to seek medical treatment overseas shall be extended to cover cost for both parents. Sport and culture Sport scholarships are to be strengthened in order to assist local athletes. Funds have been earmarked for the creation of a Malta Dance Company, a culture hub and to support local artists and bands. Follow us on The notes are designed to keep readers abreast with financial and tax developments. They are not intended to be a definitive or comprehensive analysis of the subject and should not be acted upon without prior consultation with the Partners or Senior Consultants of the firm. For further details please do not hesitate to contact: PricewaterhouseCoopers 78, Mill Street, Qormi QRM3101, Malta T: +356 21 247 000 F: +356 21 244 768 PwC Budget 2014 Page 8