Foreign help sought in suspected fraud investigations

The VAT Department is on the lookout to ensure that no fraudulent claims for refunds are made in connection with purchases of goods from EU countries, VAT director general Oliver Vassallo said in an interview.

Since Malta joined the EU, Maltese businessmen have been entitled to a VAT refund on products related to their business purchased from the EU and as claiming VAT which had not been paid is one of the most common types of fraud on the continent the Maltese VAT Department is keen not to encounter the same problem here.

Mr Vassallo said the department was in regular contact with anti-fraud units of foreign tax administrations to keep tabs on suspected cases of fraud, especially when audit checks raise doubts over the authenticity of invoices used to claim VAT.

"This kind of fraud overseas is rather common, with businessmen falsifying invoices to claim back VAT they had not paid. We have had no such cases yet but we are vigilant not to be bitten in this respect," he said.

Mr Vassallo said that although there was some 92 per cent compliance in submitting VAT returns, evasion of the tax was still widespread in various sectors of business.

Asked to give an estimate of the amount of VAT that was being evaded, Mr Vassallo said it was very difficult to do so. "There are geographic areas where there is more evasion than in others. There are also service providers who are more prone to evasion than others. Service providers are a harder nut to crack but we do try and we work hand in hand with the Tax Compliance Unit and the Inland Revenue Department in a bid to curb evasion," he said.

"A taxman's job is never easy. There are people who still do not feel the moral duty to pay taxes and most pay because they fear enforcement. If you don't enforce, you will see a steady decline in revenue in no time," he added.

"I believe in education campaigns to foster a tax-paying mentality and instil a higher sense of fiscal morality but there have to be deterrents as well. We prefer to warn people when we find problems with their returns and most simply pay what is due. If not, we will inform them they will face an investigation that may go back a few years and most then choose to pay.

"With VAT, businessmen collect tax and keep it for several weeks before handing it to the department, so they have a better cash flow. Hence, when payment is due it has to be passed to the department," Mr Vassallo explained.

Some cases of unpaid VAT have been referred to court. "People are warned to pay by the courts but some still refuse to do so even after appearing before the courts three or four times. It comes as little surprise that eventually the courts lose their patience with such stubborn defaulters and commute such fines and penalties to prison terms. It is the courts which have this power and not the VAT Department.

"Now one might argue that we should not go that far but if there are no deterrents, people would stop paying their dues," he said.

Mr Vassallo said revenue from VAT was increasing not just because the rate had gone up from 15 to 18 per cent. "Enforcement is resulting in more revenue. We carry out field inspections that go beyond looking at whether someone has issued a VAT receipt.

"Of course, we still do that as well. Inspectors often check cash registers to monitor the issue of fiscal receipts as required by the VAT law. We cannot and do not divulge information about individual cases but one case even drew remarks from the Prime Minister - inspectors found a lido that was heavily patronised with only a few receipts having been issued," Mr Vassallo said.

The department carries out random surveys in shopping areas to see where people have been shopping and whether receipts were given. In that way, trends emerge about which establishments are giving receipts and which are not.

"The VAT Department is not out to harass consumers. We seek their help as they know they have a right to be given a receipt and realise that when they pay 18 per cent VAT on goods or services, the person charging the tax is likely to pocket it himself and cheat both the government and the consumer unless they issue a fiscal receipt. They also create unfair competition with fellow businessmen," Mr Vassallo said.

The department also carries out a lot of internal work and after analysis of tax returns some cases are referred to the Tax Compliance Unit for a deep auditing investigation.

The Inland Revenue Department and the Department of Social Security are also involved in cases of suspected income tax evasion and abuse of social security.

In spite of recent changes arising from EU membership, the projected VAT revenue of Lm140 million for this year is still expected to be collected, Mr Vassallo said. After accession to the EU there seems to be a slight shift on the part of local operators towards importing more products from EU countries because VAT is not paid at the point of entry but only after the goods are sold. "This is greatly beneficial to businesses insofar as cash liquidity is concerned," Mr Vassallo said.