Parliamentary Secretary comments on Tax Compliance - 12/4/2005

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65 per cent tax compliance rate estimated

James Debono
A press conference this week at the Inland Revenue Department, at which Parliamentary Secretary Tonio Fenech announced that 30,000 pensioners and students would be exempted from filing a tax return, was transformed by journalists into a grilling on tax evasion and the performance of the Tax Compliance Unit. The media savvy parliamentary secretary, however, did not refrain from answering pertinent questions on this issue.
Fielding questions on the fact that only 606 self employed persons declare incomes of more than Lm16,000 Tonio Fenech replied “a careful and objective analysis of what is being declared shows that taxpayers can be more reasonable in their income tax declarations”. Pressed to supply concrete figures, Fenech announced that around 2,000 persons are investigated for tax evasion every year. The Parliamentary Secretary admitted that more information on the performance of the Unit would boost public confidence in the institutions.
During the press conference Tonio Fenech estimated that the tax compliance rate in the country approximates 65 per cent. This effectively means that 35 per cent of incomes stand undeclared. Fenech insisted that tax compliance rates could not be greater than the 75-80 per cent achieved in Nordic countries. “Otherwise we would end up living in a police state,” Fenech added.
Fenech explained that the Tax Compliance Unit is tackling the issue by focusing on particular sectors of the self-employed. One of the first sectors tackled by the Unit was the mechanics and panel beaters sector. According to Fenech, only 10-15 per cent of those engaged in this sector accepted to enter a forward tax agreement with the government. Those who failed to enter such an agreement were expected to prove their case with the Inland Revenue Department. The government had greater success in persuading the medical profession to enter into similar agreements. In fact, 160 out of 200 general practitioners have accepted to enter into a forward tax agreement. The Tax Compliance Unit is currently engaged in talks with medical specialists but “These discussions are proving to be more difficult”.
Fenech also announced plans to increase penalties on those who are not issuing VAT receipts. “The Lm100 fine is not an effective deterrent.”
During the same press conference a booklet on the taxpayer’s rights and obligations upon being investigated by the Inland Revenue Department was also launched.
Finally, Fenech cited the dictum that, “He who is without a sin, let him cast the first stone." Fenech warned against singling out particular categories as tax evaders and insisted that the campaign against tax evasion should be a positive one. “Without tax compliance people will not be able to benefit from public services.”

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