Lifestyles to come under scrutiny

Self-employed persons whose turnover does not exceed Lm50,000 are being asked to discuss their taxable income with the Tax Compliance Unit and come to an agreement that would cover the next three years, said Paul Barbara, director general of the Tax Compliance Unit.

When it comes to income from one's profession, no additional tax would be paid on any income other than that declared to the TCU.

The income for the second and third year will be marginally higher than that for the year preceding it.

The situation of taxpayers who fail to come to an agreement under this scheme without a justified reason will remain exactly the same as it is under the Income Tax Acts.

"Where there is evidence that taxpayers could have under-declared their income in the past, they will be liable to be investigated in accordance with the Income Tax Management Act," Mr Barbara said.

There are about 8,000 self-employed persons in Malta.

Mr Barbara said that every case discussed would be treated on its own merits, taking into account past income tax declarations made by the individual and other information available to the TCU.

That information includes details obtained from various sources that would shed light on the lifestyle of taxpayers, he said.

Mr Barbara was reacting to the Medical Association of Malta's comments, carried in The Times last Saturday, on the benchmarking exercise being carried out by the TCU.

MAM said it would be writing to the TCU requesting more information on how the system would work out in practice, and expressed concern that the worst affected would be doctors in the lower income bracket.

The association, which represents almost 600 doctors, says it would not be fair to ask doctors to agree on a taxable figure for three years when there were so many variables that could negatively affect a doctor's income.

The benchmarking scheme was announced by Finance Minister John Dalli in the last budget.

Giving more details, Mr Barbara said: "The TCU will use benchmarks as guidelines when dealing with individual taxpayers. Discussions on a case-by-case basis will be carried out with taxpayers who wish to come forward and discuss their tax situation," he said.

Like other professionals, doctors were considered worldwide to be most "at risk" where tax compliance was concerned, he said, meaning they were in a service category that could lend itself to tax evasion.

Over 50 per cent of those notified in writing of this scheme, including mechanics and panel beaters among others, had agreed to discuss their tax dues with the TCU.

Mr Barbara emphasised that the TCU would not be applying arbitrary benchmarks across the board "to arrive at presumed incomes".

He pointed out that a good number of declared incomes by the self-employed, including doctors, were faithful to what they actually earned during the year.

Questioned whether this type of exercise was an inquisition of those who worked hard to earn a living, Mr Barbara said that this would not be the case.

"Unless you have a police state, where every professional will have someone noting each and every job he carries out, the TCU has to carry out this type of exercise to curb tax evasion.

"The TCU will look at lifestyles, and sit together with each self-employed person and together arrive at a figure on which he or she will pay the tax due," Mr Barbara said.

The TCU, he said, would not comment on whether doctors should raise their fees or not as a result of higher tax compliance.

"Charging higher fees because of higher tax compliance could mean that certain doctors had been charging lower fees because they were evading tax," he said.

"Other workers pay their tax on the income earned and do not adjust their wages according to the amount of tax they pay," Mr Barbara said.

Asked whether it was fair to tax the self-employed on an annual income which would be virtually level for three years when salaried employees were taxed on each and every form of income including fringe benefits, Mr Barbara said that one had to look at the situation from a different perspective.

"One has to see how much tax would be netted from each self-employed person when compared with the income tax returns he or she used to make in the past," Mr Barbara said.

Mr Barbara said that despite several attempts by the TCU to meet with MAM to discuss issues involved in the practising of their profession, the association had not found the time to discuss such matters.

Asked for his reaction to this comment, MAM president Stephen Fava said that the association had, in fact, attempted to arrive at benchmarks for doctors as indicated by the TCU.

"But the association had failed to arrive at benchmarks that had a scientific basis. MAM had informed the TCU about this," Dr Fava said.

Speaking in parliament last night, the finance minister said MAM must have misinterpreted the voluntary scheme launched by the TCU with regard to self-employed persons whose turnover did not exceed Lm50,000.

Mr Dalli, who was answering a question by Nationalist MP Victor Galea Pace, said he wanted to put everybody's mind at rest that benchmarks did not necessarily apply to every individual in a given category. Benchmarks consisted of well-prepared studies on which TCU officials could base their arguments when negotiating with taxpayers.

It was a known fact that fees charged by doctors varied according to the area in which they served.

The government was very efficient in collecting tax. Compliance in Malta was very high, hitting the 92 per cent mark, Mr Dalli said. Now there had to be an effort to ensure compliance in the quality of the returns submitted.

His advice was for taxpayers to avail themselves of the schemes being offered by the government. Mr Dalli said that although the spontaneous declaration scheme had been a very good deal, only a handful benefited from it. This was because some accountants advised clients not to take up the offer arguing that the inland revenue department would never organise itself to the point of being able to net those evading tax. Now that the department was putting its house in order, these same accountants must see what to tell those clients they had advised not to avail themselves of the spontaneous declaration scheme.

Such schemes were merely aimed at allowing taxpayers to regularise their position and to submit correct returns. This applied to medical doctors too and Mr Dalli augured that MAM leaders would realise this and adopt a positive mentality on this matter. Rather than fight the system they ought to attempt to work in harmony with it so that MAM members would have their mind at rest that doctors-state relations were healthy but also that their own personal position was in order.