The government recently published Legal Notice 419 of 2021, titled the ‘Exemption from Tax on Property Transfers (Set-off of Tax Arrears) Rules’.

These new rules allow any person with arrears on tax, VAT, social security contributions due by an employer in respect of employees, interest, additional tax and penalties due on tax, social security and VAT arrears accrued prior to January 2021 to rectify their position with the Commissioner for Revenue.

This will be done by repaying these arrears through the proceeds of the sale of immovable property with the benefit of setting off the property transfer tax that arises on the sale of the property against the tax arrears, resulting in a de facto government-sanctioned exemption on the property transfer tax or equivalent portion of the tax arrears.

The collection of tax dues is always of utmost importance for the state but is even more so now, in the midst of the post-COVID recovery and in the shadow of Malta’s greylisting by the FATF, which specifically highlighted the lack of effective action on tax evasion as one of the main reasons resulting in the infamous greylisting.

This measure was introduced immediately after the budget, very strangely without any mention being made in the three-hour-long speech, without any known consultation with any of the constituted bodies, with no guidance notes as to its workings and no public declaration as to the government’s reasoning, which leads many to question the true motivations behind it as well as the signals it sends to the international community closely scrutinising Malta.

These new rules are a far cry from what the finance minister promised when responding to the FATF greylisting and what moral fiscal measures require. They definitely do not signal any serious intent by the government to clamp down on tax evaders or the collection of tax arrears.

Worse still, such measures completely undermine the spirit of tax fairness, putting into question the government’s commitment and ability to combat tax crimes and, possibly, also encouraging cavalier actions by those who avoid paying their dues while awaiting or lobbying for the next amnesty.

The minister of finance is empowered and entrusted with charting the financial and economic direction of the country. Introducing such suspect legislation, however, goes against the standards every person holding such an office should adhere to and only signals that the country is in the business of facilitating persons and businesses that evade taxes.

This measure has been widely condemned by all constituted bodies and stakeholders, be it specialists in the field, like the Malta Institute of Taxation, the Institute of Financial Services Practitioners and the Malta Institute of Accountants, representative bodies and even the Malta Chamber of Commerce and the Malta Developers Association, which all agree that it is discriminatory and creates an unlevel playing field between those that pay their taxes and those that do not.

These new rules are a far cry from what the finance minister promised when responding to the FATF greylisting- Mario de Marco

While there were attempts by the government to label the scheme as an element of Malta’s economic recovery from COVID-19, it goes far beyond what would have been necessary in such a case as it is not limited solely to arrears accumulated during the pandemic but extends to the years before.

The scheme, as correctly stated by various constituted bodies, also discriminates against all but a select few from the outset as its design only benefits those with unpaid tax arrears and penalties who own immovable property on which tax is due upon transfer while residents who have always kept up with their tax dues are actually disadvantaged as they will be paying the due tax on the disposal of any immovable property they own.

Even defaulters who do not own immovable property but own other property such as shares on which tax can be due upon transfer can claim to be discriminated as, should they dispose of such shares to settle their arrears, they cannot benefit from this scheme and offset the tax due upon transfer of the shares against the arrears due.

One must also ask what impact assessment was made by the government on this measure in terms of what the country will derive from it in terms of revenue and what it will cost in terms of exemption.

Why was such impact assessment, if indeed carried out, not published? Why is no cap being proposed on the capital gains tax that is being exempted?

Would it not have been fairer instead to allow taxpayers with arrears to enter a repayment programme, where they will pay a fixed instalment per month until they settle their arrears within a reasonable time frame? These are but just a few questions that Legal Notice 419 and the government leave unanswered. The opposition immediately raised such questions in parliament following the publication of the legal notice.

In the absence of clear answers to such questions, the opposition tabled in parliament a motion to revoke the legal notice, a motion which,  undoubtedly, will be contested by the government despite the legal notice being condemned not only by the opposition but also by stakeholders, the constituted bodies and the independent media.

A just and fair tax system does not reward tax defaulters and it should not send a message that such actions are not only tolerated but also rewarded. It definitely should not discriminate against the thousands of citizens who diligently pay their taxes when due while some others are busy utilising their unpaid tax dues as an overdraft facility, only to be further rewarded and enriched by the government.

In the meantime, everyone else is left questioning whether it would be wiser to do the same in the future.

Mario de Marco is PN spokesperson on finance.

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