Around €200 million in previously lost taxes in Malta are now being collected by the taxman thanks to legislative reforms and a crackdown on evaders, the European Commission has said. 

According to the commission’s VAT Gap estimates – the difference between value added tax paid in a country and that which Brussels believes should actually be collected – found that Malta had made significant progress and reduced the gap by some 90%. 

Malta’s VAT collection mechanism had previously been dubbed as one of the most inefficient among EU member states, depriving the exchequer of tens of millions of euros in potential revenue each year.

A staggering 35% of all expected VAT revenue in Malta went uncollected in 2014, the Commission estimates – with around €240 million not collected on the island that year alone.

35% of all expected VAT revenue in Malta went uncollected in 2014

But according to the latest figures, the uncollected VAT rate has since dropped by around 90% to a more manageable €20 million in 2016.

A considerable portion of the decrease has been attributed to changes in what is known as Malta’s VAT liability – the amount of potential tax to be collected.

According to Brussels, one of the most important changes that affected VAT estimates in Malta, apart from a crackdown on evaders, was the EU-wide legislative reform regarding ‘place of supply’ for e-services.

Before 2015, VAT charged on digital services, such as online betting, was invoiced to the country where the provider of services was registered. Since the reform came into effect, VAT on such transactions is now paid to the country where the customer resides.

Brussels says that Malta enjoyed the largest increase in VAT compliance in the EU – more than 25% over 2014. The EU average increase in compliance was just 2%.

Back in January the Finance Ministry had said Malta’s reputation as one of the EU’s worst VAT evaders was an unfair reading of statistics and would be revised in new reports.

The Commission said that while member states have carried out a lot of work to improve VAT collection, today’s figures show that reform of the current EU VAT system combined with better cooperation at EU level are needed so that member states can make full use of VAT revenues in their budgets.

As a whole, the union was still losing out on around €150 billion per year for national budgets.

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