Teamwork the driving force at VAT Department

MALTA has always been considered as one of the countries that was making the most progress in what was needed to be done and the changes it needed to introduce among the 10 accession countries to the European Union in the area of Value Added Tax administration.

According to VAT Commissioner Oliver Vassallo, reports by the EU Commission's Directorate General, Tax and Administration following regular monitoring visits "were always positive, even on the progress we were making".

In a wide-ranging interview with The Sunday Times, Mr Vassallo outlined the VAT Department's achievements in the past 16 months since his appointment, the run-up to May 1, 2004, when Malta joins the EU and the challenges the department faces in the short, medium and long term.

Among the top achievements Mr Vassallo hastened to mention was greater teamwork within the department. "I have always believed in teamwork," he said. "Alone, you do nothing. You always need the help of others. I do not just appreciate (that help), I consider it an achievement that I managed to increase that as well."

As a department, there has also been greater co-operation and co-ordination in the exchange of information with other tax departments: Customs, Inland Revenue and the new Tax Compliance Unit. "We have very close relations with the TCU," Mr Vassallo observed.

"Some of our people spend a number of days at the TCU, although we do not have a lot of staff. Professional and qualified accountants there carry out investigative work for us as well. In the past year this has increased."

Mr Vassallo considers as an achievement the VAT Department's contribution to the negotiation process between Malta and the EU in the area of indirect taxation, along with the alignment of VAT legislation with the EU's 6th VAT Directive.

"Although we did not take part directly as a department, we were involved and prepared position papers, which formed the basis of Malta's request for special arrangements that the Government managed to obtain."

In the area of exemptions he listed food, pharmaceuticals, water and passenger transport. "We also gave advice to the MIC (Malta-EU Information Centre). They often referred questions to us for our interpretation or opinion on certain difficulties that would arise from the provisions of the famous 6th VAT Directive."

With the help of a foreign and local consultant, this directive has been adapted in English into a local bill that now awaits approval by parliament. Mr Vassallo also paid tribute to the assistant directors and their staff who translated this bill into Maltese and designed the new forms to be introduced under the amended legislation.

"We have done other translations, like Legal Notices, before. (This) experience helped us and we did not spend any money and involve outsiders. I cannot accept that it is out of this world to translate the acquis into Maltese. The person who translated the bill is not an academic, nor is he technical, yet he even managed to translate technical phrases into Maltese. The same thing goes for the persons who drew up the notes for the filling of forms and their translation."

In the past 16 months, the department has been busy implementing a business change management plan (BCMP). This consists of a number of projects which Mr Vassallo said are aimed to "improve the department's operational capacity and upgrade its administrative capacity.

"This includes a number of enhancements and also the building or development of other IT applications to help us in our work. Today our work is heavily reliant on IT and I don't know how we could work if we did not have computers."

An Intelligence and Research Unit has been set up. "This is a humble start with limited resources, (but) the worst thing one can do is to do nothing. The primary aim is to support the Inspectorate Division (by) detecting individuals who are doing an economic activity without being registered with us. Success has been limited but we have had a few - without mentioning figures, since it is counter-productive."

Two manuals were introduced. An Operational Manual for VAT Control Visits and one to explain the present VAT legislation in simpler terms to staff members of the department. "The operations manual has filled a void," Mr Vassallo said. "There is still the perception that our VAT Inspectors only go out to check for VAT receipts and report people.

"There has been a shift for quite some time to VAT Control Visits but we have given (these visits) more emphasis in recent months. There is a checklist the inspectors have to complete, they examine the account books, observe the working environment and, after the control visit, perform an analysis in the context of the NACE Code of that particular operator. We also use risk analysis and the business audit trail to give us certain information."

A code of ethics specifically for the department was adopted "to ensure that the fundamentals of a tax department - that it always has honest, loyal people to their work - are there".

The department's Website www.vat.gov.mt was launched, including general information on the department and the law, and the facility of online registration, without having to go to the department, the ordering of fiscal receipt books and sending the VAT return electronically.

"Although the system is in place for all types of returns, for the time being we are accepting returns from taxpayers who are registered below the threshold who send a simplified tax return," Mr Vassallo explained. "The system is also ready for the taxable taxpayers to submit their VAT return online with the respective payments. We are currently in discussion with the banks through the Ministry of Finance to establish fees but from the technical aspect it is ready." A Frequently Asked Questions booklet, which is also on the department's Website, was published.

Despite all this 'peripheral' activity, Mr Vassallo emphasised that the focus remained on net revenue, which, in 2002, exceeded the 2001 VAT revenue by Lm5.5 million. This is despite "constraints in human resources", with up to 15 staff either being transferred or retiring without being replaced.

The major impact of EU membership, apart from the alignment of local legislation and the department's input in the negotiation process, will be the application of the new law, especially with regard to intra-Community trade.

The VAT Department is to adopt the VAT Information Exchange System (VIES), that is in place in all the tax administrations of the 15 member states and has to be put in place in all the 10 accession countries. Through VIES, all data is exchanged between EU Member States.

"When Malta joins the EU next May there will no longer be certain Customs formalities and importers will not have to pay VAT on the goods on entry into the country," Mr Vassallo explained.

"Such goods will no longer be considered imports but intra-community acquisitions. However, traders will have to keep certain documents, including the tax invoice, and maintain the accounts.

"Since traders will not have to pay VAT at the point of entry, their cashflow will improve and a lot of the administrative burdens will be removed.

"Exporters, on the other hand, will no longer have to follow the procedures they do at the moment. They just have to keep certain documentation, like the tax invoice and transport documents.

"Then every three months all traders who export goods have to give us (the VAT Department) an account, the Recapitulative Statement, including the VAT Registration Number of the person who received the goods and the amount exported."

Initially, this statement will be completed manually, but eventually, the data may be incorporated electronically. The department also has to set up a Central Liaison Office (CLO), which will be able to verify if the trader who is buying the goods or services has a valid VAT Identification Number (VIN).

"This is similar to a telephone prefix," Mr Vassallo explained, "but with letters and numbers. The prefix to the eight numbers for Malta is MT, with that for Germany, for example, being DE.

"It is up to the trader to verify with the CLO the trader's VIN. If the VIN is not valid or does not exist, the VAT Department will carry out an assessment on the exporter and he will have to pay the VAT himself."

After May 1 next year consumers will start paying VAT on items that fall outside the special arrangements the Government managed to obtain with the EU, including printed matter, like newspapers, which will be subject to a reduced rate of 5%, and some confectionery items.

However, Mr Vassallo stressed that the impact on the public will be limited - "the increase is going to be in the hundreds of thousands and not the millions". The department also has to implement EU directives on digital services, including e-commerce and has to work to combat "carousel fraud", to minimise fraud caused by the illegal movement of goods and services through more than one country.

In terms of short, medium and long term challenges, Mr Vassallo said the constant goal is to maximise on the efficiency of tax collection. He aims to improve efficiency through "staff training in new methods of control, investigation methodology, improving our capabilities, the skills of our VAT inspectors and other staff, introducing enhancements, improving the IT applications we have, like risk analysis, and new ones, like an IT application on the business audit trail to enable us to do certain detailed checks".

Mr Vassallo said the department will constantly strive to maintain and improve the level of services to its clients, mainly taxpayers. Improvements to the Website include online notification of dues, changes to registration details, register type, de-registration, re-activating a registration or requesting re-activation, and for a reprint of certificates.

"Our aim is to make our services more accessible to our clients to the extent that they do not even need to visit the department, leaving their homes or shops/places of business."

Finally, Mr Vassallo stressed the importance of the department's role in control through computer auditing and e-auditing, among others.

"If nothing else, recent experiences in this department have taught us how to manage change in an efficient way," he said.