'Do not stop refunds to businesses'

Prominent business representatives have expressed concern about the decision to postpone refunds because of investigation into fraud allegations at the VAT office.

Vince Farrugia, director general of the Chamber for Small and Medium Enterprises - GRTU, said the measure could be "very, very bad" for businesses because it could aggravate the cash flow problems being experienced by many companies.

Banks were being more stringent with credit, he said, so many businesses were postponing payments to other businesses to get a bit of a breather. Therefore, the government had to do all it could to speed up refunds rather than slow things further.

"This goes contrary to what everyone else is doing in Europe where they are trying to speed up refunds in order to ensure there would be no cash flow problems," he said.

Malta Employers' Association director general Joe Farrugia too said he hoped investigations would be conducted as quickly as possible to avoid any cash flow problems.

While the association understood the need to investigate such serious allegations, if the investigations took too long, businesses would end up incurring a cost, particularly at a time of economic slowdown, Mr Farrugia said.

The Sunday Times reported yesterday that over €10 million in VAT refunds were being held back because of the investigations.

Sources said the investigation had revealed that a web of criminals acting as middlemen were receiving the lion's share of a three-way scam involving VAT department staff and businessmen.

The newspaper report said intermediaries would approach businessmen and inform them they could dodge paying VAT and pocket thousands of euros in the process.

The businessmen would file their VAT return normally but, at a later stage, the staff involved would alter the return, change the figures and issue refunds and receipts. After assuring the businessmen they could not be caught because they were in cahoots with department staff, it would be established how much each party would receive.

It appeared that, in practice, only refunds that exceeded €50,000 were queried and verified by more senior officials within the department and, therefore, the reimbursements were issued in figures below that amount in the knowledge that the possibility of ever being checked was negligible.