David Thake has suspended himself from the PN's parliamentary group and resigned from the shadow cabinet pending an ethics probe into unpaid tax dues.
Thake has found himself in the spotlight over unpaid VAT by two companies he owns.
Taking to Facebook on Sunday, Thake accused the government of weaponising the civil service to attack its political opponents.
Times of Malta revealed in December how one of Thake's companies owed €270,000 in unpaid VAT.
MaltaToday further exposed on Sunday how another of Thake's companies had failed to file audited accounts for 10 years in a row, and also owed €550,000 in VAT.
Thake rubbished claims by Prime Minister Robert Abela that this was a case of tax evasion.
The PN MP said the €550,000 in VAT payments had been deferred as part of a government scheme launched during the COVID-19 pandemic to increase cash flow for struggling companies.
"The VAT owed was not accumulated over the 10 years [when the accounts were not filed], they are from during the pandemic. These deferred taxes need to be paid not only by my business, but all businesses who made use of the scheme", Thake said.
“Despite the lies, the most important thing to me is respecting good governance. My party and country are bigger than me.
“I do not want dishonest people like Robert Abela to use me to damage the good work being done by the PN.
“I have already asked the Standards Commissioner to investigate. I told Bernard Grech today I will resign from the shadow cabinet and suspend myself from the parliamentary group," Thake said.
Thake challenged the Prime Minister to publish his own tax returns.
"Let us sit down in front of journalists with our tax returns. If, like me, it turns out you have nothing to hide, I will resign immediately from parliament," Thake said.
In a subsequent statement, PN leader Bernard Grech confirmed he had accepted Thake's resignation from the shadow cabinet.
"These are the standards the PN believes in and practices," Grech said.
Grech accused Abela of failing to take action on "serious cases" within Labour, pointing out that Ian Castaldi Paris had remained in Labour's parliamentary group despite facing an investigation by the tax authorities.
The PN leader said Abela's attempts to deviate attention from the country's governance problems due to his indecision would not work.
In a statement, the Labour Party described this as another "fake suspension" from the PN parliamentary group.
Grech, it said, had not yet taken even one decision because he lacked the necessary authority as he was as guilty as those he had to decide upon.