It is hardly surprising that the government immediately ruled out any possibility that it would raise the value added tax on electricity and gas proposed by the European Commission in a report on tax reforms in the EU. Raising VAT on electricity and gas now, when the issue over the high water and electricity rates is still so politically sensitive, would be suicidal at a time when the election is getting closer. The Commission made the proposal when it suggested that Malta changes some aspects of its taxation policy. Malta’s VAT rate on electricity and gas is of five per cent.

Malta has one of the lowest VAT base rates in the EU. When the economic crisis broke out two years ago, no fewer than 11 member countries raised their VAT base rates, with the average rate in the 27 member states now standing at 21 per cent, whereas Malta’s rate is of 18 per cent, similar to that of Spain. Cyprus and Luxembourg have the lowest rate: 15 per cent.

In putting forward its proposal, the Commission remarked that support to vulnerable households could be given more efficiently through targeted welfare payments and questioned the policy adopted by Malta and a few member states to subsidise energy through reduced VAT rates. However, in arguing in this manner, the Commission seems to be forgetting the background to the situation in Malta.

Water and electricity in Malta used to be heavily subsidised and it was only recently that the government decided to remove the bulk of the subsidy, kicking off what is probably one of the longest-running controversies. The government’s reasoning for removing the subsidy was correct. It was the way it carried out the exercise that drew the sharpest criticism. This newspaper, for instance, argued all along that the subsidy should have been removed gradually, not at once, so as to reduce the impact on the consumer.

It would be wrong now to revert to subsidising water and electricity and Labour is also wrong in giving the impression that it could easily solve the problem if it is returned to power in the next election. It has no magic solution. Reacting to the Commission’s report, the Finance Minister was quite categorical: “We are not considering increasing VAT on utilities in this Budget.” So, there the matter ends, at least for now.

But the Commission raised other important matters, one of which is that over VAT efficiency, a matter that has, of course, been of great concern ever since a fraud case in the VAT Department revealed serious shortcomings in accountability and risk awareness. The Commission’s report, drawn up by the directorates for taxation and economic affairs, singles out Malta as one of the member states that needs to increase VAT efficiency. It said that Malta, Greece, Italy, Austria and Slovakia should work on “deficiencies in VAT collection” that are “driven by a high collection gap that is, at least partly, attributable to VAT fraud”.

Why is VAT efficiency “still lacking” when so much fuss had been made about the need to strengthen the department’s operations following the fraud case? As it happens, the Commission’s report comes in the wake of the complaints made recently over the delay in the mailing of tax return forms. The department denied the claims but, in the light of the latest EU Commissions’ report, a more satisfactory explanation ought to be given about the degree of efficiency that the department has now reached.