'We’ll come down on you like a ton of bricks', minister warns tax evaders

Finance Minister Clyde Caruana warned tax evaders on Monday that the government would come down on them "like a ton of bricks".

He was speaking in parliament as MPs started debating a bill which aims to improve the fight against fiscal evasion. It establishes a statutory framework for out-of-court settlement of fiscal liabilities and enhances the mechanisms for the recovery of outstanding dues.

It also gives tax authorities additional powers to enforce agreements reached with debtors for the payment of outstanding dues.

Caruana said the legacy he wanted to be remembered for was efficient tax collection, when up until a few years ago, not paying tax was seen as an overdraft facility.

He had since doubled the interest rate on overdue tax to 7.2% and remissions were not given unless the full outstanding amounts were paid. Furthermore, banks no longer advanced credit unless a client produced a certificate of a clean record with the tax authorities.

'Everyone is being assessed'

Until a few years ago, the Tax Compliance Unit randomly picked one case out of 100 for assessment. Of those, only one out of five resulted in tax evasion. Now, thanks to modern software, everyone was assessed, and 80% were found to be evading. Screening of taxpayers only took one day and was carried out every month, he said.

Thanks to recent legislation as well as this new bill, someone who was caught evading payment of €1 million in tax would end up paying that amount plus penalties and fines for a total of  €2.5 million.

As more people were caught evading tax, it was not possible to house them all in prison, Caruana said. The important thing was that they paid what was due, along with the related penalties, which should also serve as an effective deterrent.

Caruana said his words should be good news to those who paid their tax regularly and promptly. But he was warning tax evaders: the government would chase what it was due, as it was already doing. A further €33 million would be spent on the tax revenue infrastructure, not only to detect evaders but also those who could be falling back.

No new taxes in the Budget

It was this efficient tax collection, plus a growing economy, which was helping to narrow the deficit. It was this success which also enabled him to say that no new taxes would be introduced in the next Budget.

The government had been generous with those who needed help, with the COVID-19 crisis being a case in point, he said. But that could only happen when everyone paid their dues.

The bill was introduced by Justice Minister Jonathan Attard, who described it as a “holistic solution” to those who want to pay back their taxes but are intimidated to come forward.

Attard, who focused more on the legal perspective of the bill, said the current system has fallen short at times. 

Attard provided an example where a business had a clear agreement on its tax liabilities, including any additional taxes owed. Despite this, the company was subjected to prolonged legal battles over alleged money laundering and other offences.

By the time the business finally paid the owed taxes, it faced a freezing order, was assigned an administrator who charged thousands of euros to oversee operations, and encountered a range of complications with the banks.

He stressed that the government wanted the people to pay the taxes they owed and their additional taxes when they defaulted, without being dragged through the courts.

“This won't just be an opportunity for someone to carry their judicial and fiscal responsibility, but will offer justice more efficiently,” said Attard.

The bill provides for the out-of-court settlement of disputes with the government’s revenue departments in a manner which involves additional penalties comparable to the amounts payable as fines in criminal proceedings, apart from the administrative sanctions which are normally imposed.

The bill also lays down that whoever fraudulently breaches an agreement with a government department for the extinction or postponement of any criminal action apart from providing for the delayed payment of any sum due, shall on conviction, be liable to imprisonment for a period not exceeding four years or to a fine not exceeding €2.5 million, or to both.

Similarly, in terms of the Social Security Act, whoever breaches the conditions of an agreement with a government Department without just cause shall be liable to imprisonment for up to two years and a fine of €500,000, or both.

The amendments will impact all of Malta’s tax laws, including the Social Security Act, the Duty on Documents and Transfers Act, the Income Tax Management Act, the Value Added Tax Act, as well as introducing changes to Malta’s Criminal Code.

Major tax evaders avoiding court

Shadow Finance Minister Graham Bencini described the bill as a “direct insult to any family or entrepreneur that chose honesty over evasion.”

Bencini said that the bill did not work as a “deterrent” to tax evasion and that the opposition would be voting against it because it was not there for those “genuine, honest cases” that needed assistance.

“This bill is not helping genuine taxpayers but is giving a gift to those who did not fulfil their duty to the country, people who intentionally planned to evade tax,” said Bencini.

Bencini outlined that there were three groups of people when it comes to this subject: genuine taxpayers, genuine tax contributors who struggled to pay on time and people who actively evaded tax.

He described the latter as “not cases of individuals who are not lacking in resources but rather cases of intentional injustice.”      

The bill was later approved through all stages, with the opposition voting against.

The House then rose for its summer recess.