There is substantial tax evasion - Dalli

Finance Minister John Dalli yesterday hit out at employers who have criticised the increase in VAT on the premise that it would erode disposable income and raise their costs.

"They and their consultants made a very improper analysis and are very shortsighted in their assessment," Mr Dalli said.

"We have a deficit which has to be reduced. A government can tax people directly or indirectly. It can take, or not give you. Both have the same effect on purchasing power but we strike a social balance.

"We know those who can afford to spend more and pay more VAT than those with lower incomes. The government has more sensitivity to such issues than employers," Mr Dalli said.

Malta had a very low inflation rate and the removal of more levies next year should continue to deflate prices. Competition should help bring prices down as the foodstuffs sector too would be liberalised. Hence, the increase in VAT would not have the big effect that employers were claiming it would, he said.

Mr Dalli said he was surprised employers were complaining that the budget had not addressed competitiveness.

"At the Malta Council for Economic and Social Development, we had agreed to discuss the matter in the first six months of next year. I hope they come to discuss the issue with an open mind and with Agenda Malta as their agenda."

Asked about the employers' comments that a higher VAT would entice more evasion and that self-employed persons often had pressure from customers who did not want to pay VAT, Mr Dalli said the control of tax evasion was the government's responsibility and it was determined to strengthen both the VAT department and the tax compliance unit.

"We need the cooperation of the public before anything else because the public should insist on being given VAT receipts.

"But it is unfair of employers to take this line. We had a problem with drains at the ministry and several people were called and none wanted to work because they had to provide a VAT receipt. Everyone says you have to call 10 people before you find one willing to work and issue a VAT receipt.

"We have to strengthen the enforcement and management at the VAT department. The systems are in place and they work. We just need people who are able to interpret the information that exists. There is substantial tax evasion and I believe it pays to invest to ensure we get the money due," Mr Dalli said.

He said the VAT department could detect instances where self-employed persons claimed back VAT on items they had bought which were for their personal or home use rather than for their business.

"Perhaps we should make the fines stiffer to make them more of a deterrent. The problem is that you have people who get caught and who will still try again."

Asked about the tax compliance unit, Mr Dalli said there were many who were interested in putting spokes in the wheels and placing hurdles in the unit's path.

"There too we may need to revise laws to strengthen enforcement.

"One has to strike the right balance. We cannot make a draconian institution. There is a limit as to how far it can go and the unit works on a one-to-one basis. It amasses information and then goes back to the individual.

"But it is a no-win situation. We know we can improve the tax collection systems and when we did the opposition criticised us because we collected more when, in reality, we increased revenue through efficiency and not because we increased taxes," Mr Dalli said.