Departure tax may be trimmed 'but not abolished'

The departure tax might be reduced but not eliminated in the upcoming budget, Tonio Fenech, Parliamentary Secretary at the Finance Ministry, hinted yesterday.

Reacting to the EU decision to start infringement procedures against Malta after it ruled that the Lm20 charge for outbound air travellers was discriminatory, Mr Fenech said the government is expected to deal with the tax in the pre-budget document to be published in the coming days.

The consultation document would discuss whether the tax should be reduced, he told The Times.

The government, however, has been working on the possibility of re-examining the tax - which will generate Lm4 million this year - through its tax review commission. It was not contemplating the measure merely because the EU had written to the government, according to Mr Fenech.

"We will reply to the EU Commission's official letter although the Maltese government does not agree with the substance of a number of the issues raised," Mr Fenech said.

The Times yesterday reported that the European Commission has written to the government because it deemed the tax discriminatory, firstly because it was applied on anybody travelling out of the island but not on those taking a "flight" to Gozo.

Secondly, the tax made it difficult for Maltese lawyers, doctors and other professionals to go and see clients overseas, the EU argued. "The argument that the tax discriminates against professionals does not hold water because professionals rendering a service abroad get their travel tax deducted at the end of the year. On flights to Gozo, I do not think people will be too keen if we were to introduce the tax on the flight service to the sister island," Mr Fenech said.

According to statistics, the parliamentary secretary said, the decision to increase the tax had not hindered people from travelling. Though there had been a slight dip in departures last year, the number of departures had gone up in the first five months of this year.

"We also think that taxation issues should be a prerogative of the national authorities and not the EU. Such a tax is applied in other countries, as well," Mr Fenech said.

Labour MEP Joseph Muscat has welcomed the news that the European Commission has initiated steps against the departure tax and called on the government to revise its position.

Mr Muscat said he was insisting for this revision now before EU procedures would go further.

The government had doubled the tax to Lm20 in the 2004 budget as a revenue source. The decision was widely criticised, particularly by travel agents and by Nationalist MEP Simon Busuttil, because it was seen as a hindrance to freedom of movement in an island where air travel is a must.

The EU was informed that the tax was introduced merely for revenue purposes and, in the circumstances, is deemed to be out of line with EU legislation.

A letter of formal notice has been sent to the government, which now has to submit its observations within two months.