Seven in ten active companies pay no income tax, Finance Minister says

Around 70% of active companies in Malta do not declare any profits and don’t pay a cent in tax, Finance Minister Clyde Caruana told the Public Accounts Committee on Wednesday.

Caruana was speaking during a discussion about tax collection, spurred by a report on the topic by the auditor general.

He argued that despite ongoing efforts to tighten tax collection, Malta’s long-standing struggles with tax evasion persist.

Caruana told the committee that seven out of every ten companies pay no income tax whatsoever because they do not declare a profit. These are active companies with employees on their books, not dormant companies, Caruana added.

He also rejected a suggestion, raised by opposition MP Graham Bencini, over whether companies might not be declaring any profits because they were being incorporated into their salaries.

“I refuse to accept that argument,” Caruana said. “The numbers do not corroborate that claim”.

Pointing to the ministry’s new AI-powered system now being used to screen all taxpayers, Caruana warned that it could soon turn its eye to combing through companies’ income in greater detail.

“At some point we need to start analysing companies’ profits. What is eating away at their profits, or is this being engineered?” he asked.

'Billions' won't be recovered

Caruana admitted that a large portion of pending tax bills, which amounts to “billions” of euro, can likely never be recovered.

However, there still “hundreds of millions” in unpaid tax payments that the taxman can recover, he said.

Nevertheless, Caruana said he refused to scrap unrecoverable debts until all sides, including the opposition, agreed with the move.

“There are bad debts that will never be recovered. But there needs to be agreement between all sides to scrap bad debts because I don’t want to be accused of granting amnesties. This can be used as a political football,” he said.

This is not the first time Caruana has alluded to Malta’s historically lax attitude towards tax collection.

Speaking during a Times of Malta event in 2022, he pointed to how just 35-40% of businesses declared a profit in 2019.

At a more recent event, held last week, he said that restaurants pay an average of just €4,500 in corporate income tax each year, less than that paid by many ordinary citizens

During the summer, he warned that tax authorities would crack down on tax dodgers “like a ton of bricks,” arguing that the government can no longer afford to be used as a cheap overdraft facility for private companies.

At the time, Caruana was speaking during a parliamentary debate into a controversial new bill allowing tax cheats to escape prosecution if they regularise their tax position and pay a hefty additional fine.