Car vatting defying logic
The government's position on refunds of VAT levied on the car registration tax is clear in intent, but hazy in prospect. The authorities insist that they will not take the initiative to refund VAT, but if there is a court decision that such refunds...
The government's position on refunds of VAT levied on the car registration tax is clear in intent, but hazy in prospect. The authorities insist that they will not take the initiative to refund VAT, but if there is a court decision that such refunds have to be made, they will abide by that decision.
So the question becomes - what is the likelihood that a Maltese court will find against the government and for car buyers? In this regard the Ministry of Finance, already covered by legal advice that it should not effect refunds unless ordered to do so, will take heart from a report by Ivan Camilleri in the weekend's The Sunday Times.
The report says that four countries, besides Malta, have refused to refund car VAT. The four are Austria, Finland, Poland and Portugal.
They too were warned by the European Commission in early 2007 to amend legislation related to VAT levied on registration tax.
Since then Finland changed its law; the amendments came into force yesterday. Nevertheless the Finnish fiscal authorities insist that the old legislation was within the parameters of EU rules and thus consumers will not be entitled to any VAT refunds.
The Finnish authorities were quite cynical in the way they went about changing the situation. They removed the 22 per cent VAT on registration tax and simply increased the registration tax by a similar 22 per cent.
The Maltese government was not as overtly cynical, overhauling the car tax system to relate the new fees to vehicle age and emissions.
But, as is now well known, the Finance Ministry too is adamant that the old taxation system was in line with EU rules and that, consequently, no refunds of VAT will be made to those who had paid VAT on their car registration tax.
The stand of the Finnish and Maltese authorities is firm to the point of being pig-headed. It is the latter because it seems to run in the face of simple logic. If the old system was within the parameters of that stipulated by the EU, why did they agree to change it?
No logical reply has been given by the government. Its position is simply that VAT refunds would cost approximately €50 million, and that if such refunds were given they would have to be financed by other taxation, or by an increase in the national debt, burdening further the already creaking future generations. The tax shifting argument is another one which does not stand up to simple logic. The taxpayers who bought cars do not represent the whole base of taxpayers. They were charged VAT on their registration tax specifically, not as part of the collectivity.
Clearly, the government is peddling this argument simply to set taxpayers against the would-be beneficiaries from VAT refunds - that is, those who might have been wrongly made to pay a tax on tax.
In this latter regard there can be no room for disagreement - VAT on car registration tax is a tax on tax. The Minister of Finance must have had his tongue in his cheek when he declared that one tax is paid by car importers and the other by consumers.
The affair will go to court and that not simply because the Labour Party has made a political meal out of the issue. Without any local party lifting a finger, some consumer or other would have initiated a test case.
There is every reason to do so after the reply given by the European Taxation Commissioner Laszlo Kovacs to a parliamentary question by Labour MEP Louis Grech.
Taxpayers, he said, must exercise their right in accordance with the procedures provided for similar refunds in national law, as at present there is no common or harmonised set of substantive or procedural Community rules governing remedies for the enforcement of Community law.
It is, the Commissioner continued, for the national courts to apply domestic rules, which must ensure that taxes levied in breach of EU law are reimbursed.
The sting is in the tail. Once the government agreed to change the system of taxing cars after being required to do so by the EU, it implicitly conceded that it was levying a tax in breach of EU laws.
Really and truly, would the EU have acted back in 2007 had it not been certain of the breaches by the indicated countries?
It is understandable that the Finance Ministry will not welcome the prospect, for a prospect it still is, of burdening the fiscal outturn with further and unplanned expenditure approaching €50 million. But if the government erred, it has to rectify its error.
It isn't simply a matter of moral right, as suggested by one of the government party's own European Parliament candidates.
It is a matter of common decency. It will be surprising if the local courts do not rule that way because of some arcane legal argument.
So the question becomes - what is the likelihood that a Maltese court will find against the government and for car buyers? In this regard the Ministry of Finance, already covered by legal advice that it should not effect refunds unless ordered to do so, will take heart from a report by Ivan Camilleri in the weekend's The Sunday Times.
The report says that four countries, besides Malta, have refused to refund car VAT. The four are Austria, Finland, Poland and Portugal.
They too were warned by the European Commission in early 2007 to amend legislation related to VAT levied on registration tax.
Since then Finland changed its law; the amendments came into force yesterday. Nevertheless the Finnish fiscal authorities insist that the old legislation was within the parameters of EU rules and thus consumers will not be entitled to any VAT refunds.
The Finnish authorities were quite cynical in the way they went about changing the situation. They removed the 22 per cent VAT on registration tax and simply increased the registration tax by a similar 22 per cent.
The Maltese government was not as overtly cynical, overhauling the car tax system to relate the new fees to vehicle age and emissions.
But, as is now well known, the Finance Ministry too is adamant that the old taxation system was in line with EU rules and that, consequently, no refunds of VAT will be made to those who had paid VAT on their car registration tax.
The stand of the Finnish and Maltese authorities is firm to the point of being pig-headed. It is the latter because it seems to run in the face of simple logic. If the old system was within the parameters of that stipulated by the EU, why did they agree to change it?
No logical reply has been given by the government. Its position is simply that VAT refunds would cost approximately €50 million, and that if such refunds were given they would have to be financed by other taxation, or by an increase in the national debt, burdening further the already creaking future generations. The tax shifting argument is another one which does not stand up to simple logic. The taxpayers who bought cars do not represent the whole base of taxpayers. They were charged VAT on their registration tax specifically, not as part of the collectivity.
Clearly, the government is peddling this argument simply to set taxpayers against the would-be beneficiaries from VAT refunds - that is, those who might have been wrongly made to pay a tax on tax.
In this latter regard there can be no room for disagreement - VAT on car registration tax is a tax on tax. The Minister of Finance must have had his tongue in his cheek when he declared that one tax is paid by car importers and the other by consumers.
The affair will go to court and that not simply because the Labour Party has made a political meal out of the issue. Without any local party lifting a finger, some consumer or other would have initiated a test case.
There is every reason to do so after the reply given by the European Taxation Commissioner Laszlo Kovacs to a parliamentary question by Labour MEP Louis Grech.
Taxpayers, he said, must exercise their right in accordance with the procedures provided for similar refunds in national law, as at present there is no common or harmonised set of substantive or procedural Community rules governing remedies for the enforcement of Community law.
It is, the Commissioner continued, for the national courts to apply domestic rules, which must ensure that taxes levied in breach of EU law are reimbursed.
The sting is in the tail. Once the government agreed to change the system of taxing cars after being required to do so by the EU, it implicitly conceded that it was levying a tax in breach of EU laws.
Really and truly, would the EU have acted back in 2007 had it not been certain of the breaches by the indicated countries?
It is understandable that the Finance Ministry will not welcome the prospect, for a prospect it still is, of burdening the fiscal outturn with further and unplanned expenditure approaching €50 million. But if the government erred, it has to rectify its error.
It isn't simply a matter of moral right, as suggested by one of the government party's own European Parliament candidates.
It is a matter of common decency. It will be surprising if the local courts do not rule that way because of some arcane legal argument.