Finance ministers have an interest to ensure that citizens pay all their tax dues, on time, in order to protect the interests of those who finance public services and benefit from them.
But political priorities often weaken a government determination to go beyond paying lip service to fiscal morality.
A new legal notice allows those with tax arrears due by January 2021 to pay any tax due on the transfer of property purchased before March 2021 against their arrears. In return, the government will cancel any penalties and stop legal proceedings against the defaulting taxpayer, and will forego the tax generally paid on property sales.
This measure has understandably outraged many taxpayers, especially among the business community. The Chamber of Commerce was the first to insist that “this scheme benefits only the defaulters and does not consider those who have their tax payments in order. This is unfair to those employers and businesses who pay their taxes as and when due”.
The patent inequity of the measure has since been objected to by the Malta Institute of Taxation, the Institute of Financial Services Practitioners, the Malta Institute of Accountants and the Malta Developers Association.
The finance minister is the steward of the country’s fiscal resources. He is expected to act with total integrity, which means always doing what is right. Of course, ministers of finance have substantial power to use their discretion to optimise the measures to support the economy and employment.
During the pandemic, large amounts of taxpayers’ money were used to protect jobs and save businesses from insolvency. Most of these measures were very generous but arguably the right ones to achieve the stated objective.
On the other hand, the preferential treatment given to property developers who have defaulted on their tax payments simply cannot be justified. It amounts to moral hazard. As the chamber pointed out, “This legal notice seeks only to proliferate an uneven playing field in favour of those who are in default and who are in the habit of using their due tax as their overdraft facility.”
There could be a number of reasons behind this fiscally immoral legal notice. With the general election approaching, the government may be trying to curry favour with some property speculators who do not take their fiscal obligations seriously. The minister may also believe that this scheme will boost property sales in the context of a market that many argue is under pressure due to an oversupply of residential and commercial property.
However, the legal notice also condones abuse by property developers who fail to pay NI of their employees on time. Rewarding these tax defaulters by granting them a fiscal amnesty is a dangerous precedent.
It encourages those who pay their taxes, as and when due, to question the wisdom of abiding by the law when, sooner or later, they might benefit by ignoring their obligations.
There are exceptional circumstances when tax amnesties can benefit the community. But tax amnesties that are discriminatory and granted regularly only encourage abuse by those who believe that they can twist the arms of politicians eager to resort to short-term fixes in fiscal management.
Rating agencies regularly advise the government to be more effective in collecting tax dues. This is done through consistent enforcement of fiscal regulations and not through the preferential treatment given to sectors with a strong lobby in government circles.
If the finance minister wants to be credible when promoting the importance of paying our taxes on time, he must do more than pay lip service to fiscal morality. This measure is wrong and must be revoked.