The government estimates it is losing out on at least €120 million through VAT evasion every year, as it plans to clamp down on abusers in October's budget.
According to internal estimates drawn up by the Finance Ministry’s Economic Policy Department, Malta is estimated to lose between €120 million and €150 million to VAT evasion every year.
This figure is, however, believed by some in Malta’s fiscal authorities to actually be much smaller than the real amount of money that is being pocketed by VAT dodgers rather than passed on to the public coffers.
Some senior officials told Times of Malta the actual figure could reach as high as €300 million at the height of pre-pandemic economic activity.
Before the onset of the COVID-19 outbreak, the Inland Revenue Department would collect some €800 million in VAT every year from taxpayers.
On Tuesday, Finance Minister Clyde Caruana launched a pre-budget document during which he said the government plans to come down hard on VAT evasion.
Caruana said that in the budget speech, set for October 11, he will give clear direction on how the government plans to stem these tax leaks.
He has not said how much he hopes to collect, but a senior government source privy to the budget plans said the government wanted to try and recoup close to “every penny” being evaded.
Before the global coronavirus hit Malta’s shores, VAT revenue accounted for around a fifth of all state revenue.
According to the European Commission’s latest VAT gap report, Malta lost out on around €164 million worth of revenue during 2019.
The VAT gap is an economic formula that provides a measure of the effectiveness of VAT enforcement and compliance procedures by estimating the difference between VAT paid and the actual VAT that should have been collected.
The wider the gap, the more tax is being lost to the black market economy.
During the pre-budget discussion with the social partners, Caruana reiterated the government’s plan to halve the public deficit to 5.2 per cent next year after it ballooned as a result of COVID-related spending.
The current deficit in public finances stands at €1.6 billion, or 12 per cent, far higher than the 5.9 per cent that was originally projected for 2021.
The minister said the government would have to shore up public finances to ensure future generations can face challenges as comfortably as the country had handled COVID-19.
To do this, it would not only seek to stem tax leaks but also focus on job creation. Set for October 11, this will be Caruana’s first budget since taking over the Finance Ministry last year.