Issue link: https://maltatoday.uberflip.com/i/767061
7 maltatoday, SATURDAY, 24 DECEMBER 2016 2016: Looking back The birth of PanamaPants How cartoonist Mark Scicluna captured the fall from grace of Konrad Mizzi bottom often irks larger economies and the EU's economic powerhouses are less than pleased with the laxity of Malta's tax regime. Every year Malta wipes out €4 billion in foreign tax by giving shareholders 85% re- bates on their tax and the involvement of Malta-based companies in the Panama Papers placed Malta's imputation system under the limelight of the European Par- liament's investigation into tax avoidance practices. Yet, both major political parties are in agreement on protecting the current system and resist any attempts to regularise taxa- tion at a European level. The moral question which has so far been avoided is what to do about Malta's finan- cial services sector being in thrall to the offshore game. If it's immoral, then rules should be forthcoming to regulate the sec- tor: rules preventing Maltese citizens from making use of offshore, if this can allow them to avoid paying tax at home. Had Mizzi and Schembri's name not been flagged by the Panama leaks, the two major parties would not have said a word about the global tax ruse that is offshore – a sys- tem of tax evasion that benefits from euphe- mistic semantics such as 'avoidance' or 'tax planning' or 'minimising tax exposure'. In reality, it is simple tax evasion rendered legal only through the sheer power of sov- ereign might. Malta spent years making its transition from offshore to onshore, en- suring double taxation agreements and tax information exchange agreements accord- ing it the status of a respectable tax regime. But how else would one describe the use of Malta as a base for foreign shareholders to get 85% lopped off their tax on dividends, if not a tax evasion of sorts? That system of 'legal tax planning' is re- sponsible for hundreds of millions in inter- national tax left in the country's coffers, and it is a system jealously guarded by our finan- cial services industry because it guarantees millions in billings for the audit firms, and hundreds if not thousands in direct jobs for tax auditing. For this reason, exposing and criticising the system is deemed treacherous and Mus- cat and Busuttil speak about 'pulling the same rope' on tax and financial services. Intermediary companies and individuals who offer such services play a central role in this system; and while they undoubtedly act within the parameters of the law, they also act as vehicles which shift money to places which guarantee secrecy, low or zero income tax rates, and non-cooperation with tax authorities from other countries. Ultimately, Malta should have a mature debate and decide whether being an actor in the international orgy of tax evasion, money laundering and kleptocracy is or is not ac- ceptable. Both Labour and the PN venerate financial services as an untouchable pillar of the Mal- tese economy. Both parties have so far de- fended the industry tooth and nail, as long as anything it does falls within the confines of legality. But this is clearly not good enough, when the entire industry is geared towards finding loopholes within the system. Ultimately, Panama Papers poses an in- triguing moral dilemma for Muscat. Despite maintaining a diminished yet comfortable lead in the polls, Muscat will be haunted right up until the elections, and perhaps be- yond, by a crisis of morality caused by his own unwillingness to do the right thing, and send the message that offshore is wrong, and that politicians who make use of tax se- crecy cannot remain in office. government bruised but not crushed