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Matthew Vella
The government has told host families it has reached a “reasonable and practical” agreement to tax their income from accommodation they give to foreign language students, right at the start of the peak season.
In a letter sent to host families, Parliamentary Secretary Tonio Fenech said a “simple and equitable” manner to reflect the income generated from hosting students had been agreed upon.
But English-language schools are still claiming the new tax will not be helping them overcome their shortage of host families.
“It could rock the sector, which according to last year’s NSO figures is still growing, up to 62,000 students in 2005 from 56,000 in the previous year,” John Dimech, the president of the federation of English-language schools FELTOM, claimed.
Host families will be allowed a Lm1,000 “residence-sharing deduction” from their total income, and will only be taxed on the resulting “net profit”, which will be 35 per cent of the remaining balance. The other 65 per cent is being considered as expenses incurred for hosting the students.
Host families are also expected to be taxed on net profit generated in 2002, 2003 and 2004 only if their net profits exceed Lm3,100. This will be taxed at 15 per cent, although it is unlikely that anyone will be exceeding the Lm3,100 band, John Dimech said.
Legally, since any commercial undertaking requires the payment of social security contributions, host families will also be required to submit these payments from 2006 onwards if taxable income exceeds Lm390.
“In reality families can have the licence in the husband’s name and avoid paying contributions if he works and already pays social security. The examples in Tonio Fenech’s letter do not suggest this alternative and as we did not have much time to inform families accordingly, we may have lost a few families,” Dimech said.
The activity can also be registered as part-time work, in which case the net profit generated will be taxed at a fixed rate of 15 per cent on the first Lm3,000 net profit.
Dimech said the announcement of the tax, right at the start of the peak season, was badly timed and had caused “a lot of unnecessary alarm” and scared off potential host families.
Julian Cassar Torregiani, director of AM Language Studio, said the tax was a fair assessment of what technically was a business, but said it still had negative consequences.
“If taxable income exceeds Lm390 housewives will be expected to pay social security. Even if this income was registered in the husband’s name, who is already working and paying social security, it might push their income over a higher tax band. The tax will condition host families, and they will think whether hosting students is worth it or not.”
Dimech also said government may have overlooked the exemption of certain social cases, such as single parents, from having to pay social security contributions.
Income from hosting students, mainly throughout the summer season, had for long been considered by families as a source of supplementary income, beyond the reach of the taxman. Last year, government entered into talks with the Chamber of SMEs (GRTU) and FELTOM in a bid to get host families to declare their income.
“Obviously, nobody likes to pay tax but we understood from the GRTU that the new method of taxation is fair,” Dimech said.
Families will not be required to maintain accounting records and receipts, but the Inland Revenue Department will be receiving information from all schools and compare all the declarations made.
mvella@mediatoday.com.mt
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