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14 maltatoday | SUNDAY • 23 AUGUST 2026 NEWS Malta's fiscal rebound increasingly dependent on corporate tax windfall Malta's deficit fell below the EU's 3% threshold in 2025, but the improvement was increasingly driven by a surge in corporate tax payments, from Malta-registered firms operating mainly overseas MALTA'S general government deficit narrowed to 2.2% of GDP in 2025, falling below the Euro- pean Union's 3% reference value for the first time since the pan- demic. But the improvement in pub- lic finances came alongside a record contribution from di- rect taxation, with taxes on income and wealth reaching 15.1% of GDP–the highest-ever recorded ratio. The increase did not result from a general increase in tax rates. Instead, a Central Bank of Malta analysis by senior economist Jessica Pace points to a sharp rise in the amount of tax paid by companies and individuals, on the basis of stronger economic activity, im- proved tax administration and legislative changes. Corporate income taxes were the main driver of the increase. The analysis says that "corpo- rate income taxes contributed most to this increase" in taxes on income and wealth. Corporate income tax reached 7.1% of GDP in 2025, compared with an average of 5.3% over the previous decade. The Central Bank says the performance over the past two years "mostly reflects a surge in the amount of taxes paid by firms registered in Malta but conducting most of their busi- ness overseas". These companies typically benefit from Malta's generous tax refund system, through which shareholders can claim refunds on corporate tax paid by Maltese companies. However, the Central Bank stresses that these firms still pay significant amounts in tax after all refunds have been set- tled with the tax authorities. The increase in corporate tax revenue was also helped by im- provements in tax administra- tion. Since 2024, tax refunds have been processed in a timelier manner, meaning companies have been receiving refunds more quickly while the tax system has been able to better manage the flow of corporate tax payments. Legislative initiatives also contributed to the increase in corporate tax revenue. The Consolidated Group (In- come Tax) Rules allow parent companies and subsidiaries to be treated as a single fiscal unit, giving businesses greater cash- flow flexibility and encourag- ing them to settle tax liabilities more quickly. Changes linked to the inter- national Pillar 2 rules have also allowed certain multination- al companies to opt for a 15% non-refundable tax rate. Income tax rises despite cuts Personal income tax receipts also reached a record 7.6% of GDP in 2025. Again, the increase did not come from higher personal in- come tax rates. Government had widened income tax bands and distributed income tax re- bates to employees. The Central Bank said strong employment growth, higher av- erage wages and improved tax- payer compliance more than offset the revenue lost through these tax measures. The tax-take therefore in- creased because more people were working, wages were ris- ing and more tax was being collected, rather than because of an across-the-board increase in tax rates. VAT grows, but economy grows faster Indirect taxation increased to 9.6% of GDP in 2025, but re- mained below its pre-pandem- ic average of 12%. This does not mean VAT rev- enues performed poorly. VAT receipts were support- ed by strong domestic demand and record tourism activity. However, the economy itself grew faster than revenues from some other indirect taxes, in- cluding excise and stamp du- ties. This means that even where revenues increased in euro terms, they could fall as a share of GDP because the economy – the denominator – was ex- panding more rapidly. A similar situation resulted with social security contribu- tions, which stood at 5.1% of GDP. Contributions are sub- ject to weekly caps, meaning they cannot increase at the same pace as wages and eco- nomic output. Growing reliance on corporate tax The Central Bank analysis points to a significant shift in Malta's fiscal structure. Taxes on income and wealth are now the only major revenue category exceeding their his- torical averages, with corporate income tax standing well above its previous decade average. Corporate tax reached 7.1% of GDP in 2025, compared with 5.3% over the previous decade. The figures underline the growing importance of com- panies, particularly interna- tionally active firms registered in Malta, to government reve- nues. At the same time, the Europe- an Council has raised concerns over Malta's relatively rapid expenditure growth, particu- larly spending on public sector wages and energy subsidies. The improvement in the defi- cit therefore leaves Malta's public finances increasingly re- liant on the continued strength of direct tax revenues, particu- larly corporate tax. JAMES DEBONO jdebono@mediatoday.com.mt These companies typically benefit from Malta's generous tax refund system, through which shareholders can claim refunds on corporate tax paid by Maltese companies (Photo: File Photo)