Bill to stop VAT leakage

Parliament yesterday debated amendments to the VAT Act aimed at stamping out abuse by merchants who import products without paying VAT.

Parliamentary Secretary Tonio Fenech said this Bill was being moved in agreement with the Chamber of Commerce and the GRTU. While parallel trading was allowed, there had to be a level playing field for everybody.

Mr Fenech said it was unfair that some importers managed to circumvent the law and avoided paying tax, thus enjoying an unfair competitive advantage.

Once Malta joined the EU, the barriers to imports from EU countries were lifted. The single market was an important feature of the EU.

But it was just as important to ensure that all due taxes were paid and not avoided on the pretext of free circulation. There were those who bought items cheaply from Sicily on which no tax would probably have been paid, to resell them here without paying taxes, including VAT and the eco-tax.

Measures had already been taken to stop some of this abuse, particularly in the case of the importation of spirits, and thousands of bottles which did not carry banderols were seized.

In terms of this Bill, persons transporting goods in the course of an economic activity, on their own behalf or on behalf of or to third parties had to be in possession of a tax invoice, a delivery note or a transport document giving a description of all the goods being transported, the value of the goods, the unit quantity, the date of delivery, the destination address, the name and address and value-added, tax registration number of the supplier and the name and address and VAT registration number of the person to whom the supply was made.

Those failing to present such documents would be guilty of an offence and would be fined from Lm300 and up to 10 times the tax due.

This was in line with what was done in other countries.

VAT inspectors were being given the right to inspect premises where an economic activity was carried out or was suspected to be carried out to inspect goods or the vehicles in which they were transported.

Parliamentary Secretary Edwin Vassallo said the lifting of customs controls on imports from the EU had been a major reform which benefitted businesses. Inspections stopped being made at point of entry and were being made at point of sale.

He said people importing products for commercial purposes had to be VAT registered. But not everyone was so registered. New practices were introduced by people in business to the detriment of those who were organised.

This Bill was strengthening the audit trail in the VAT system and would ensure greater fairness.

Labour MP José Herrera said the opposition agreed with the Bill but it proved the opposition right in its criticism before Malta joined the EU that once duties were lifted, imports could not be stopped and people would be able to import products to the detriment of legal traders.

This was what was happening, particularly with regard to products bought from Sicily without VAT being paid. However, it was worth pointing out that similar legislation had already existed. It was already a crime to import products without the right documentation. The fine could go up to Lm1,500 and there were fines which could go up to 10 times the tax due.

Labour MP Charles Mangion said the opposition agreed on stopping VAT leakage. He recalled, however, that this government had raised VAT from 15 to 18 per cent, impacting on everybody's quality of life.

Certain items which up to some time ago had been exempt from VAT were now subject to this tax. These included books, magazines and printed matter - which were subject to five per cent, and certain elements of a medical nature, such as syringes. School uniforms were also subject to VAT. This showed that education was not completely exempted from VAT.

All this had to be considered in view of the fact that the country's average wage compared to the Eurozone countries.

Labour's approval of this amendment did not contradict its previous criticism of VAT legislation but was meant to avoid abuse.

Winding up, Parliamentary Secretary Tonio Fenech said VAT had been raised in the national interest while other services remained free. It was worth recalling that while Labour had removed VAT, it substituted it with a tax that was higher than 18 per cent.

Dr Mangion had acknowledged there was no VAT on education but on some items which may be related to education such as books and magazines.

The government had negotiated with the EU to obtain VAT derogations and these were obtained on some items but not on others.

The truth was that this five per cent VAT could not be removed and in spite of the promises being made by Labour this was not permitted by the EU.

The Bill was then approved through committee.