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The European Commission has decided to allow Malta apply a reduced rate of VAT on the supply of electricity, MaltaToday can confirm, following a request made by Malta to the Commission earlier in June.
The positive decision has not yet been notified but confronted by this fact after yesterday’s press conference in Castille, Prime Minister Lawrence Gonzi, who is also finance minister, was unaware of Malta’s request in the first place.
Earlier in the week, the Ministry for IT and Investments, whose remit includes Enemalta, directed this newspaper to the ministry of finance, when asked to comment on the request, “since it was a fiscal measure.”
According to a letter registered at the Commission on 18 June, 2004, Malta informed the European Commission of its intention of applying a reduced rate of VAT to the supply of electricity. VAT on electricity is already charged at the reduced rate of five per cent but this is absorbed by Enemalta rather than passed on to the consumer.
It is unclear whether Malta’s request is related to any forthcoming budget measure.
The planned measure is a general one: “Applying a reduced rate of VAT to the supply of electricity under Article 12(3)(b) of the Sixth VAT Directive.”
According to the letter, the Maltese government justified its intention to a reduced VAT rate on electricity on the grounds that the island’s electricity system is small and isolated, and so there is no risk of distorting competition on the internal market. The Commission decision also notes that at present Malta does not use natural gas because it has no gas network or connection
The Commission said the supply of electricity from distributors to the final consumer is taxed at the place where the customer has effective use and consumption of electricity, and that taxation takes place in the country where actual consumption takes place, in conformity to the Sixth VAT Directive.
“Since the measure is a general one with no provision for exceptions, the risk of distortion of competition must be deemed non-existent,” the Commission said, allowing Malta to apply a reduced rate of VAT “irrespective of the conditions of production and supply.”
On 1 January 2003, a VAT rate of five per cent was levied on Malta’s electricity supply, which had been exempt without credit prior to that. The new charge was not passed on to the consumer as it was absorbed by Enemalta..
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