Tax bands changes 'possible'

Being still so close to the November budget, the government had no plans to change the tax bands although that might happen in the coming budget, Tonio Fenech, Parliamentary Secretary at the Finance Ministry said yesterday.

Mr Fenech did not elaborate.

He did, however, expand on the issue of VAT, saying the government is planning to push up the fines for those who fail to issue VAT receipts.

He said the fines as they stood today - Lm100 for the first offence, Lm150 for a subsequent offence and Lm200 for a third - were far too low to act as an effective deterrent.

"The fines have to be raised drastically. People have to realise that with higher tax compliance, the country will be able to sustain its social security services, including health in particular.

"For those who rarely have to go to hospital the connection between tax compliance and sustainability of the public health system is not readily apparent. But once one resorts to the medical service for treatment of any sort, one immediately realises the scale of expense involved in maintaining the public health services.

"Those who abuse by not issuing a VAT receipt range from the small, one-man, back room operation to professionals. The department had made it easier for VAT-registered persons to comply by paying the tax due.

"After the time-limit expires, the VAT department has the legal backing and obligation to take defaulters to court. We do not now expect any organisation to come out criticising the department if the court sends VAT defaulters to prisons," he added.

The parliamentary secretary was speaking to reporters at the Inland Revenue Department (IRD), in Floriana, when he gave details of a new scheme whereby about 30,000 pensioners and students would not have to fill an income tax return.

This does not mean, he was quick to qualify, that pensioners and students who engage in any kind of paid activity would not have to inform the IRD about it.

The whole object of the exemption is for the department to become more efficient in the collection of taxes by releasing those pensioners and students whose income does not fall within a taxable band.

The department will be sending letters to those falling under the two categories.

By May they will be receiving a tax statement showing their tax position for the year of assessment 2005 that covers last year's income. The statement will include details of the individual's sources of income known to the department. Persons falling under this exemption will be advised to fill in any other income not shown in the statement compiled by the department.

When asked why this exemption was not extended also to those who state that their total income is only just about or slightly above the minimum wage, Mr Fenech said the ministry felt this would create a loophole through which certain taxpayers would abuse.

He said the Tax Compliance Unit grills about 2,000 individuals annually.

In the case of mechanics and panel beaters, only between 10 and 15 per cent out of 1,000 tradesmen had agreed to sign a three-year Forward Tax Agreement with the department.

In the case of general practitioners, 160 out of 200 GPs had signed a similar agreement.

The department has just published a booklet spelling out the duties and obligations of taxpayers when they are investigated by IRD officials. Such information is also available on the department website.

Last month replies to parliamentary questions by Labour MP Noel Farrugia revealed that last year the IRD paid out Lm13.8 million in income tax refunds. Another Lm129.3 million were outstanding in income tax up to 1998 including ex-officio assessments that were being contested by taxpayers. A total of Lm127.5 million were due for the years 1999-2004, including Lm113.6 million in taxes and fines estimated by the IR Commissioner after returns were not filed.