The government's late payments

Way back in 1997, the European Commission published a study highlighting the burden being placed on businesses, particularly smaller enterprises, by the late payments of amounts due to them. This state of affairs created an uneven playing field in favour of the bigger players and thus hindered competition.

In order to combat this practice, EU Directive 2000/35 came into force in 2002 and Malta adopted it by means of Legal Notice 233 in 2005.

The main purpose of this directive was to provide relief to businesses by giving them a statutory right to claim interest on late payments. It imposed a penalty interest of seven per cent above the European Central Bank rate. Furthermore it called on member states to ensure that an enforceable title to unchallenged claims would be obtained from the courts within 90 days of the commencement of legal proceedings.

Notwithstanding the above, the situation in Malta remains one of non-compliance. Late payment is endemic. Not only do many dominant businesses demand and often obtain excessive credit terms running up to 180 days, but even the public authorities, who should be leading by example, are settling their debts increasingly late. Rather than assisting enterprises during these difficult times of economic recession, the government is making a bad situation worse by increasing the pressure on the cash flow of many enterprises.

I shall quote but two examples. Importers of medicines are owed millions of euro for goods supplied to the Health Department. Will they be due interest in line with the EU directive when they are eventually paid?

The other example relates to the Waste Management Act that came into force in 2004. Commercial users who either collect their own packaging waste or who delegate this obligation to a recognised waste collection scheme are entitled to a refund of eco tax paid by them when they place their products on the market. Five years have gone by and, despite repeated promises by the government, no refunds have been forthcoming. At the same, of course, these companies are obliged to pay their income tax and VAT payments on the dot. Failure to do so makes them liable to hefty fines. How can the government justify this position which is, to say the least, morally untenable? The Italians have an expression - sopra corna bastonate - that would aptly describe this state of affairs.

Some refunds are, however, paid on time. Refunds due by the Inland Revenue Department are paid promptly because, if they are not, the department is liable to pay a penalty of one per cent per month, similar to what the taxpayer is charged for late payment. Now that can be described as "what is good for the goose is good for the gander".

A few days ago the Prime Minister was asked about the millions due to the business community. He confirmed that this situation existed but he added there were also cases of companies owing money to the government. So here we might have a solution to this problem. Will the Prime Minister authorise the set-off of the value of supplies made to government and/or the refund of eco tax against the payment of income tax or VAT at least by those companies whose tax payments are "up to date"?

I believe the EU has recently made further changes to the late payment directive that oblige public authorities to pay their dues within 30 days or pay interest together with a recovery cost of five per cent of the amount due.

What happens now? Will we comply or do EU directives no longer apply to Malta? Perhaps one of our MEPs could enlighten us further on this matter.