Banks roped in on VAT arrears

The government has struck a deal with commercial banks that would enable companies to settle their long-outstanding VAT arrears through loans, after most defaulters again ignored a generous scheme to waive penalties.

A letter is now being sent to all defaulting companies warning them to settle their dues by next week - or else face legal action, Parliamentary Secretary Tonio Fenech told The Times.

Earlier this year the government had offered to waive up to Lm5.1 million owed in penalties as long as the defaulters regularised their position by the end of June. But just Lm2 million of the Lm21 million owed were collected, so the government decided to extend the scheme to September. Hoteliers in particular had asked the government for an extension on the grounds that many operators suffer from a lack of liquidity in the early months of the year.

But now, as the second deadline looms, only about Lm1 million of the outstanding Lm19 million has so far been coughed up, Mr Fenech said.

The government faces an uphill struggle in trying to collect - Mr Fenech said that no less than Lm13 million of the Lm18 million still owed was being contested and deliberated upon in four tribunals.

Commercial banks have now agreed to step in to finance the VAT arrears, provided the defaulting operators agree to the scheme.

Mr Fenech urged companies facing liquidity problems to make the necessary arrangements with the banks, saying bank interest rates were, after all, cheaper than the one per cent per month charged by the VAT Department.

"There is a culture in Malta that people don't go to banks to finance their tax arrears. Banks are however seeing this scheme as a possibility of striking a relationship with new clients, and we are urging everybody to take it on board," Mr Fenech said. Banks have been given until October 15 to send their final submissions to clients that have already approached them.

He disagreed with the suggestion that the government was being lenient with defaulters. "We are talking of a culture change and it often takes a while to get the message across."

But he insisted that a lack of cash flow should be no excuse for opting out of settling one's tax dues. Thanks to EU membership, operators now need not pay their VAT until the sale is done, giving them some breathing space.

"Operators need to realise that they cannot trade with government money," said Mr Fenech.