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How does the COVID-19 impact on tax?

Malta's Commissioner for Revenue has released tax-related guidance for self-employed taxpayers receiving the COVID wage supplement. 

The wage supplement (EUR800 or less, according to eligibility) is the Government's contribution to self-employed persons whose businesses have been negatively affected by the COVID-19 pandemic. This supplement is intended to replace or supplement the normal income of self-employed persons and is taxable in the hands of the recipient.

From payments to taxpayers, the Government will retain 10 percent social security contributions from the payment, withholding no more than EUR80 for the maximum payment. This amount will be creditable against their social security contributions for the year. The guidance further explains how persons subject to Class 2 rates should account for the wage supplement.

Certain employees may be liable to pay Class 2 rates even though they are employed persons, such as certain directors. According to the guidance, the employer may be eligible for the wage supplement grant on behalf of these persons. In such case, the 10 percent SSC should be retained and treated as prepaid.

The emoluments earned and tax paid are required to be declared on the Final Settlement System forms, the guidance states. However, the SSC (being Class 2) should be omitted from such forms "in line with the usual procedure," the guidance concludes.



Policies to cut taxes and fees are important means to deal with the economic downturn especially affected by COVID-19, but the current study has no consistent conclusion of whether SMEs expand their labor demand because of this.

Suwei Xiao made a study on tax cuts and fee reductions and labor demand of SMEs. This paper, published on the journal of Financial Forum, builds a structural vector autoregressive (VAR) model to analyze the dynamic effects of tax cuts and fee reduction policies on increasing labor demand for SMEs.

The empirical results show that tax cuts and fee reductions are important causes of short-term employment fluctuations, but in the long run, it is difficult for taxation policies to have a direct positive effect on employment. Therefore, this article puts forward the idea that different tax incentives can be formulated for small and medium-sized enterprises in the short term according to their life cycles. In the long run, the focus of macro-control needs to be turned to supply management to achieve the goal of stable employment. Read the full paper at: