Updated July 9 with IRD statement

A tax watchdog has warned Finance Minister Clyde Caruana that taxpayers are using the Inland Revenue Department as their own personal “bank overdraft” facility.

A report by the Revenue Remissions Supervisory Board implies that government officials responsible for tax collection are effectively helping taxpayers avoid paying their dues.

In its annual report submitted to parliament, the government-appointed watchdog said it was once again disappointed at the large amount of tax remission requests that were put down to cash flow problems.

Taxpayers can apply for a form of pardon on interest and penalties when they fall behind on their income tax and VAT dues, provided they give a “reasonable excuse” for doing so.

The board, which audits these requests, noted that many of them were blamed on “cash flow problems”.

“This is tantamount to such taxpayers often coming across as using the Revenue Department as either their own “bank overdraft” or other source of supporting finance. And this of course is wrong, and legislation to curb it needs to be considered in some form or other,” the board said.

Finance Minister Clyde Caruana has long spoken about the need to crack down on tax cheats.

The board said that just like in previous years, it came across requests for remission that were “clearly” drawn up with the help of people from inside Inland Revenue.

“It warrants repeating that this is not professional conduct, nor is it considered ethical,” the board said.

The board further said that it continues to face “excuses” by the tax department when it comes to providing it with data.

These excuses include “IT system reasons,” the board said while noting that in past years the requested data would have been provided.

“This is hampering the desired operations of this board and the board kindly requests the minister to intervene with Department/Division heads, emphasising the necessity of their cooperation in replying fully to our data requests,” the report says.

The board described the problem as being two-pronged: either the departments not having “suitable IT systems” to enable them to satisfy the board’s requests for “important data” to fulfil its audit functions and reporting to parliament, or not being “as solicitous as required” when the board asks it for data.

Board chairperson John Consiglio referred questions by Times of Malta about the issues flagged in the report to the Finance Ministry.

Most of the issues highlighted in the board’s 2023 report have been raised in previous reports.

The Finance Ministry did not respond to a request for comment.

IRD: Provisions exist for many years and work

In a statement sent to Times of Malta after publication, the Inland Revenue Department noted that the practice of pardoning interest and penalties on any tax owed was permitted by law and also a long-standing practice. 

It noted that the way penalties for late submission of returns or omissions were calculated have varied over the years. The percentage rate of interest imposed on late payments has also varied, the IRD said.

It said that it has been turning down requests for remission on interest due for any tax due from 2020 onwards, as the rate of interest imposed on pending balances was changed.

"In earlier years the amounts involved could add up to totals which could have been considered excessive and presented a hurdle even when taxpayers were trying to come into line in their tax affairs.

 "In such circumstances, the Commissioner has been partially remitting interest and penalties according to the law where taxpayers are willing to bring their affairs up to date and pay all outstanding pure taxes due."

Officials who did so were acting in line with the law and working to increase compliance, the IRD said, adding that "in 2023 alone over €15 million in tax arrears were collected through this mechanism."