Updated 2.45pm with Labour reply
An ‘anomaly’ in the way the government computes income tax looks to have cost certain taxpayers hundreds of euros since 2017.
The discrepancy in the way salaries are taxed for the upper two income bands means taxpayers in those categories could have ended up out of pocket by an average of €105 per year.
Finance Minister Clyde Caruana insisted that the way income tax is being computed obeys the letter of the law and side-stepped the issue.
In a Facebook post, the Finance Ministry denied “overcharging” people on their tax computations. The ministry said the methodology applied and currently in law is intentional, and by no means a mistake.
This is because the ‘anomaly’ in the way companies and the Inland Revenue Department calculate tax is built into the Income Tax Act.
What is the anomaly?
Calculations carried out by Times of Malta and independently verified by tax experts confirm single taxpayers earning more than €19,500, couples earning over €28,700 and parents with income exceeding €21,200 could all be paying tax at a slightly higher rate than they realise.
This is because the Income Tax Act provides a quick way to calculate tax dues, by multiplying your income by the tax band you fall under, and then subtracting that amount by a preset 'subtract' figure.
Income tax in Malta is taxed progressively throughout the different bands, with the first bracket being tax-free. Each subsequent bracket is taxed at 15%, 25% and 35% respectively.
Amendments to the income tax law in 2016 further split the 25% bracket into two.
The 'subtract' figure built into the law is meant to provide an easy way to see the final amount of tax due, without having to manually calculate the dues.
However, manually calculating the amount of tax due by working progressively through the bands yields a discrepancy in favour of the government when it comes to higher earners.
The discrepancy kicks in when calculating income tax due under the second 25% bracket and upper 35% band.
Questions about the anomaly were first raised on social media platform Reddit earlier this month.
The ministry said on Saturday that differences in computations that “lead to a specific outcome as a form of incentive can never be described as overcharging or mistaken”.
Earlier this month, the government announced it would be offering a “tax refund” to various categories of taxpayers, though no mention about the “anomaly” was made.
In a reaction, the Nationalist Party said the government has effectively admitted to “purposely stealing” from taxpayers.
The PN said Labour has failed to offer any answers as to why people have for years been taxed more than they should have.
It drew parallels to “anomalies” in the law that led to people being charged more on their water and electricity bills.
That drew a reaction from the Labour Party, which in a statement said that the PN was lying and that the 'anomaly' had been introduced as a means of slashing taxes for workers.
"The PN is so politically desperate that it's lying about the 2016 tax reductions, introduced so that more people can enjoy lower taxes," it said.