The introduction of a wealth tax in Malta

Abstract

Most people think of family income as a measure of well being, but family wealth is also a source of well being, independent of the direct income it provides. There are various economic reasons referring to the importance of wealth. Some assets, particularly owner occupied housing, provide services directly to the owner; the same line of thought applies for consumer durables such as cars. Moreover wealth brings security to its owner, who knows that his consumption can be sustained even if income fluctuates. Most assets can be sold for cash or used as collateral means for loans, thus providing for unanticipated consumption needs. In times of economic stress, occasioned by such crises as unemployment or sickness, wealth is an important cushion. This dissertation assesses the relative merits of a net wealth tax and its administration in Malta. The net wealth tax law forms part of the Maltese tax regime and legislation, so another aim is to illustrate how other laws and legal interpretations would affect the drafting of the net wealth tax law. Finally this dissertation provides guidelines on how the value of assets and liabilities may be determined. This study has been complemented by an analysis of the need for wealth taxes and a discussion why the Maltese Capital Gains Tax is not enough. Legal issues and other laws influencing the eventual annual net wealth tax law have been examined. Meanwhile guidelines on how to measure the value of all assets and liabilities have also been established in accordance with International Accounting Standards. The main reason why an annual net wealth tax should be introduced is that currently the Government of Malta is trying to eliminate tax avoidance, hence the implementation of the benchmarking exercise. Those reporting under the set benchmarks will automatically be subject to an investigation, thus the system would be a minimum tax system. Apart from being a useful adjunct to the income tax, a wealth tax would be more acceptable as it is based on reality while the benchmark treatment is to some extent based on hypothetical conclusions.