Two articles in the local press recently caught my attention. I was amazed by the magnitude of the funds involved but I must admit I was not surprised by what they reported.
Report 1: According to data released by the European Commission, the offshore holdings of the Maltese are valued at a staggering €5.2 billion. This figure equates to nearly half (48 per cent) of our annual gross domestic product. This ratio is among the highest in the EU.
I believe one doesn’t need to be a rocket scientist to discover the reason for this massive flight of capital – two words tell the whole story – tax evasion.
We can imagine what our country could gain even if only half of this €5.2 billion were to be repatriated, invested and taxed in Malta. The member states with the largest offshore wealth in GDP terms are Cyprus, Malta, Portugal and Greece, all consistently above the EU average. It seems that Malta has achieved the “best in Europe” status as far as tax evasion is concerned.
Back in 2001, the report claims that Malta’s offshore holdings were in the region of €1.5 billion and this figure did not vary for several years until 2006 when it doubled to €3.4 billion.
After 2006, the figure reverted to normal levels before it more than doubled from €2.3 billion to €5.2 billion between 2011 and 2016. If these figures are accurate, then it seems that it is not only our economy that has taken off in recent years!
Do our tax authorities make a serious attempt to come down heavily on this blatant abuse that continues to enrich the super wealthy while robing the lesser mortals of potential improvements to their lives? On balance I would say they surely do not because as a seasoned ex-politician told me curbing tax evasion costs votes.
I very much doubt whether our government still believes in fiscal morality and that is the major problem
Report 2: A second report by the European Commission informs us that Malta is estimated to have lost €260 million to tax evasion principally in VAT and income tax in one year alone (2016). This too is a staggering figure. The so-called Investor Scheme (selling passports) sells our soul/citizenship to mega-rich foreigners who for dubious reasons of their own are desperate to obtain an EU passport.
This measure yields between €40 and €50 million annually which government claims to be an important addition to our national revenue. It is unfortunately not taking any account of the collateral damage caused to our country’s long-term reputation. Our government claims it has a mandate to introduce this measure and it is stubbornly refusing to withdraw it.
If we were to cut local tax evasion by a third, our tax revenues would increase by €120 million annually. As tax receipts accelerated, we would be able to put a definitive stop to the distasteful sale of our citizenship and still be left with an extra €80 million in the kitty. If nothing else, this money could be utilised in drastically reducing poverty which remains a blot on our country.
I very much doubt whether our government still believes in fiscal morality and that is the major problem. If it did, I would suggest that it adopts a name-and-shame approach to evasion by publicising every person’s tax declaration every year as happens in Norway, the richest country in the world.
Malta is a miniscule country by comparison where everybody knows everybody else, so the fact that one would be able to reconcile a person’s tax declarations with his/her ostentatious flaunting of their wealth could well serve as an effective deterrent to the rampant tax evasion that exists today.
Tony Zammit Cutajar is a retired businessman.