The provision of free public services like education and healthcare depends critically on the ability of the government to collect direct and indirect taxes. In an ideal world, projected tax incomes can be relied on to finance the public services that most people take for granted.

The European Commission’s report on EU member states’ ‘VAT Gap’ gives valuable insights into the different countries’ efficiency in the collection of Value Added Tax. The commission defines the VAT gap as “the difference between expected revenues in the EU member states and the revenues actually collected”.

The headline figure of this report is that, in 2019, EU countries lost €134 billion in VAT revenues because of inefficiencies in collecting tax due. Malta collected €287 million less than targeted. This is not good news for most EU member states or for the European Union as a whole.

The Von der Leyen-led commission has outlined an ambitious plan to revive European economies after years of sluggish growth made worse by COVID.

The European Green Deal is a critical, forward-looking strategic element to stimulate sustainable development in the Union. However, its success will depend on finding the money needed to develop, purchase and implement the required technology. A portion of that funding will come from investors, who will rightly expect to be paid interest on the money they lend. Another good part of the money needed has to come from taxpayers.

Tax dodgers – who do not pay their fair share into such projects or into public services – impose an unfair burden on honest taxpayers. They must be stopped from doing so by determined political action.

More than most other EU member states, Malta must address its inefficiency in collecting VAT and other taxes. It can do this firstly by summoning the political will to try and convince everyone that tax evaders are criminals who deserve no impunity. Malta’s greylisting has recently kindled a government realisation that it needs to do more in this regard. This is an opportunity to embark on a campaign of persuasion and enforcement.

It is shameful that, in 2019, the biggest increase in the VAT gap was recorded in Malta – 5.4 per cent over 2018. In the same period, 18 member states narrowed their VAT gap.

Another unflattering figure for Malta is that, in 2019, its missing VAT revenue was equivalent to 23 per cent of the amount the tax authorities should have collected. Only Romania and Greece had worse VAT compliance records.

There are a number of drivers behind the VAT gap. The leading causes include tax fraud, evasion, avoidance and optimisation practices as well as bankruptcies, financial insolvencies and also administrative errors.

Today, the method used by the commission to determine the VAT gap does not allow for a further breakdown into these causes. It is encouraging that EU tax experts are considering more targeted studies in the future that would identify these separate factors.

If Malta wants to improve its tax compliance enforcement record it must address the lack of political will to always do what is right in fiscal management. Policymakers must adopt good economic governance practices built on fiscal rectitude.

The EU report argues that “we need to make a joint effort to crack down on VAT fraud, a serious crime that takes money out of consumers’ pockets, undermines our welfare systems and depletes the government coffers”.

If the government wants to improve its reputation, it needs to make public its plans to fight the spread of the black economy, tax evasion and avoidance and it needs to apply regulations consistently.

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