23 - 29 November 2000

Fund management companies still in the dark over new Budget tax

by Franco Aloisio

Several fund management companies and stockbrokers were still in the dark yesterday over the Budget measure announced last Monday which introduced a withholding tax on collective investment schemes. As a result, the companies could not provide answers to the several enquires made in the last two days by investors.
Sources said it was not clear whether the withholding tax would apply only to government bonds, or any other funds. The Budget speech stated that the fund manager, or the local representative in the case of a foreign fund, which has a primary or a secondary listing on the Malta Stock Exchange can register with the Inland Revenue Department so that income to investors in the fund will be subject to a 15 per cent final withholding tax.
The sources added that another problem was how the 15 per cent tax would be charged. Many believed that ultimately the tax would be charged on the interests levied by fund managers in the bond market. Another issue is the way the withholding tax is intermingled with the capital gains tax.
Fund management companies will be seeking explanations from the government and the Inland Revenue Department. Meetings are scheduled to take place this week.
Finance Minister John Dalli said on Monday that an anomalous situation has crept between those who invest on the Stock Exchange and those who invest in bank deposits.
“For example, if one buys government stock directly he will be liable to tax. If the same individual invests in an accumulator fund which reinvests in government stock then tax is not levied. This is not correct. It is time that all types of investments are treated equally.
“Therefore, income to local residents from Investment Collective Schemes both if they are traded on the primary listing in the exchange and if they are traded on the secondary listing of the exchange will be subject to tax. In order to make myself clear these will include distributing funds as well as accumulator funds,” Mr Dalli said.
All income earned by persons or companies that trade securities will continue to be subject to tax at normal rates. These include persons who are residents of Malta and who conduct a banking service under the Banking Act of 1994, persons who are residents of Malta and who conduct an insurance business, every company that belongs or that is controlled, directly or indirectly by persons mentioned above.