Editorial

John Dalli flew off the handle the other day over attacks that the rise in the higher VAT rate would erode disposable income and raise costs. He accused employers and their consultants of making a very improper analysis and that they are shortsighted in their assessment.

The finance minister's point was that Malta had a low inflation rate and that the removal of more levies next year should continue to deflate prices. He argues that the rise in the VAT rate would not, therefore, have the big effect that the employers were claiming it would. It remains to be seen what effect the rise in the VAT rate would really have as it works itself out in the system.

But would it not also be more to the point for the country to focus on the need to check tax evasion? Should it not also be the employers' and trade unions' duty to preach fiscal morality? And should the government not lead by example?

To be fair, the president of the Chamber of Commerce some time ago raised the matter in no uncertain manner. The chamber referred to the "considerable" tax evasion taking place and spoke of part-time tradesmen and individuals in the service sector who keep no formal set of business records or accounts and rely on word of mouth to promote their work. The majority operate in the underground economy since they are not VAT-registered.

Evasion of VAT is taking place at various levels and the culprits are not just the operators who are not VAT-registered but all those who on engaging tradesmen specifically request to be charged at the basic rate, that is, without the VAT charge.

A public statement made by none other than the finance minister is shocking, not to call it scandalous. He let it be known that, faced with a problem affecting drains at the ministry, several people were called but none wanted to work because they had to provide a VAT receipt. If a person has the cheek to react that way to the Finance Ministry just imagine what it will be like when dealing with John Citizen!

Perhaps Mr Dalli can now put our minds at rest and lead by example by announcing that the tax compliance unit has been instructed to look into the operations of the people who were contacted but who said they would not be providing a VAT receipt.

The minister said the extent of tax evasion was "substantial" and that he felt it paid to invest to ensure that the country gets the money due. He is right of course and it is expected that the social partners would do their duty and, in keeping with their social responsibilities, work to promote fiscal morality among their members.

The government, Mr Dalli says, plans to come down hard on those who are evading the tax, adding that the systems are in place and that these work. Do they really?

On the other hand, if, as the minister says, the problem is that you get people who get caught and who would still try again (at evading tax) then it is clear the deterrent is not stiff enough.

So, along with strengthening all the existing departmental procedures to ensure greater efficiency in collection, steps ought to be taken now to make the deterrent much stiffer than it is now.

The growing evasion culture will not be checked unless it is relentlessly fought with the right tools.