People caught changing or erasing tax information or fiscal data belonging to a company can face criminal charges, under recently amended VAT laws.

Using software that could “erase, destroy, damage or conceal any stored information or records, documents or accounts” would expose the user and supplier of such computer programmes liable to criminal proceedings, a Finance Ministry spokesman said.

The legal amendment forms part of a series of measures implemented at the VAT Department to address serious “shortcomings” highlighted in a recent internal report that identified “a grave risk” of insider fraud.

The report was commissioned in the wake of a fraud scandal that hit the department three years ago leading to convictions against several businessmen and, so far, one VAT employee.

Answering questions by The Times, the Finance Ministry listed a series of measures put in place as a result of the report, which was concluded in February but only published this week.

In line with legal changes made, failure to provide the VAT Commissioner with copies of fiscal receipts – used or empty – on request could also be considered a criminal offence, the spokesman said.

Moreover, fiscal receipt books are only being provided once the used books are returned and any request would “be analysed to ensure that the supplied books do not exceed what is reasonably necessary”.

After the report was published on Monday, the department’s director-general denied there was lack of accountability and risk awareness in the department.

The report provoked a reaction from Labour Party finance spokesman Karmenu Vella, who said it raised more questions and concerns.

“The report states that the VAT Department regularly reported back to the Office of the Prime Minister and the Finance Minister,” Mr Vella said in a press conference in front of the Prime Minister’s office in Castille yesterday.

“Someone needs to shoulder political responsibility because the government knew what was happening,” he said.

Finance Minister Tonio Fenech defended his handling of the situation in Parliament last night, saying he had referred allegations of abuse to the police the minute he received them .

With regard to the delay in publishing the report, Mr Fenech said the document was about the VAT Department operations and was not related to the fraud cases.

A ministry spokesman later told The Times “it would have been very irresponsible” to publish the report before tackling the shortcomings.

“The safeguarding of revenue in such circumstances takes precedence over the publishing of the report. Premature publication, without the necessary time to make changes and take remedial action, would have caused more public harm than good,” the spokesman said.

Since the ministry was “satisfied” that the shortcomings had been addressed, releasing the report was “warranted”, together with the action taken “where appropriate”.

Security within the VAT Department was increased. Records were kept of people who visited the department outside the customer care area and security tags were introduced.

The department was also trying to identify people who had changed their address but failed to inform it. “Through this exercise, the department increased compliance and reduced the risk related to the recovery of balances due,” the spokesman said.

An incentive was also introduced for people who submit their VAT returns online with payments, allowing them a seven-day extension of their due date without incurring penalties or interest.

“Compared to the paper VAT return, online submission is more secure and would ensure the integrity of the submitted data,” the spokesman said.

To address the shortage of VAT inspectors, a call for applications was issued and another 10 people were employed, including three accountants, whose role is to “provide technical assistance” in a VAT investigation.

A new unit was set up to carry out controls and internal audits to make sure regulations and procedures were followed, to carry out risk assessments and to analyse claims for refunds, among other things.

Increased controls were introduced for refund claims that were being scrutinised by the new unit. Those that failed to pass the criteria were investigated further.

The ledger statement was also made more user-friendly. It was sent with the VAT return to immediately inform people to rectify their position with the department “to ensure that steps are taken at an early stage for the necessary compliance”.

The government’s IT agency, Mita, also started to strengthen the risk analysis system and was developing the necessary software, which will include all relevant reports, which are now done manually, in the system.