Malta 'lost' €305m in VAT over seven years

Malta has lost a potential €305 million in VAT proceeds between 2000 and 2006, according to a new European Commission study.

In the seven-year period under review, Malta could have raked in €2.48 billion in VAT but managed to collect €2.18 billion.

The study calculates the VAT gap of the EU member states by working out the difference between the theoretical net VAT liability for the economy as a whole and the actual VAT receipts. The shortfall is the result of fraud and unpaid VAT liability due to insolvencies.

Malta's situation is similar to the other EU member states where the disparity in some countries is even higher than the 14 per cent attributed to Malta.

Moreover, the VAT gap varied during the years. It reached its highest peak in 2003, when it soared to 19 per cent of the potential VAT due, a huge leap over the previous year when the smallest gap was registered with four per cent.

Although the study, carried out by a UK firm, is quite comprehensive, the Commission explained that there were still difficulties to get the full picture.

"The theoretical VAT liability is calculated from national accounts data, published by national statistical offices, which are produced for purposes other than calculating a VAT liability," the Commission explained. "Although best efforts were made, it was impossible to capture all the complexities of the VAT system of each member state."

An EU official said that, although the study included some assumptions made by consultants, it still presented a pretty good picture of the potential VAT that member states were still not managing to collect. EU Taxation Commissioner László Kovács said the study confirmed estimates of VAT fraud that were made in the past and stressed the absolute need for the EU and member states to continue their efforts in fighting VAT fraud.

On an EU level, the study comes up with an estimated VAT gap varying between €90 billion and €113 billion in the period 2000-2006.