Six VAT employees to face further questioning shortly

The six employees who have been suspended over the fraud allegations at the VAT department are expected to be called in for further questioning by the police in the coming days.

Police sources said the investigations were ongoing and that arraignments were improbable this week.

Millions of euros are believed to have been lost as a result of fraudulent practices by VAT department staff going back a number of years. Besides the department people, businessmen and middlemen are also being investigated. The case is likely to be the biggest cases of fraud involving a government entity.

The allegations surfaced after a businessman, who had been approached, passed on the information to Finance Minister Tonio Fenech last December.

Since the first arrest of eight officials took place 10 days ago, the department decided to freeze all VAT refunds pending investigations - a move which has been criticised by business leaders, especially in the current economic climate.

The Finance Minister told The Times yesterday that the decision was not taken "capriciously" but for proper vetting to be done before the refunds are issued.

Yesterday, the Malta Chamber of Commerce and Industry added its voice to the concerns. Postponing VAT refunds would serve to "innocently victimise law abiding business people", the chamber said.

The chamber appealed to the authorities to complete the necessary investigations as soon as possible to return the VAT Department to business as usual within a reasonable time.

"Genuine members of the business community, who are already facing cash flow problems, should not be punished for other people's offences," it said.

Vince Farrugia, on behalf of the Chamber of Small and Medium Businesses, and Joe Farrugia, on behalf of the Malta Employers' Association, both expressed concern about holding back VAT refunds.

The Sunday Times reported that around €10 million in VAT refunds were being withheld because of the investigations. The newspaper report quoted sources as saying that 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.

It 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 tamper with the return, change the figures and issue refunds and receipts.

It appeared that only refunds that exceeded €50,000 were queried and verified by 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 remote.