OPINION: THE UNCOLLECTED VAT GAP

A former Minister of Finance, very much involved in the introduction of Value Added Tax legislation in Malta, used to say that with every additional ten millions of VAT collected from one financial year to the next, in the subsequent national budget he would be in a position to slash income tax substantially.

He wasn’t speaking off his hat. Indeed there is ample academic research to substantiate this reality in various countries’ experiences at the time when they introduced VAT.  There is a basic underpinning having much to do with a country’s propensity towards, respectively, direct or indirect taxation.  In the case of Malta such discourse has often been heard, but fact remains that we are all still miles away from any fantasy situation where income tax will disappear in Malta. The EU’s praiseworthy constant monitoring of how we manage our tax affairs will make sure that we continue to act responsibly on our various fiscal fronts.

But the fact remains that there are still several pockets of actioning, and non-actioning, where rampant tax evasion still runs riot in these islands. VAT is one of them. Out there on the ground there are still far, far, far too many who are getting away with murder. Ask any open air market operator in the sister island of Gozo for a VAT receipt for one’s purchase/s and he will be faced with a face that extends from the irate to the ignorant.

Or, how many retailers and professional services providers (doctors, lawyers, architects, handymen, etc.) who cover themselves with the excuse that “we are not Vatable” (i.e. when being assessed their operative income does not exceed a certain threshold), but who should, as the law stands, still be issuing VAT receipts for all their operations with customers: how many of these are in fact never subjected to any surprise controlling visits by VAT inspectors?

These are only a couple of simple examples of what is the situation where national VAT dues are concerned.  Can it be reversed? At a time when many in the local business world will now soon again start their collective – i.e. through their various lobbying organisations – bleating in the wake of government’s decisions to stop the COVID-19 Wage Supplement’s handouts by the end of this May, one can just imagine how they will react if increased fiscal monitoring and control measures come to be implemented.

The EU knows well enough the truth in this area of our national fiscal scene. On VAT specifically, often has been pointed out to government the big wide chasm between the total quantum of VATable business and operations that take place in Malta and the actual quantum of VAT which goes into government’s coffers.  It is an undeniable fact that far too many are getting away with murder on this front, and indeed the biggest non-payers of VAT are often operators with medium to large turnovers. It has been reported that there is a new guy in charge in the national Revenue Department. This too is another area for him to prove his worth in.