There is a growing trend of businessmen fraudulently buying goods from abroad under someone else's VAT number to evade tax.
The VAT Department is investigating nine cases of VAT number hijack, as they are referred to, and another case was passed on to the police, a Finance Ministry spokes-man said.
However, he pointed out that fraudulent use of other people's VAT numbers by traders was a "reality in all EU member states".
The hijacking is leading to a number of traders being issued with VAT assessments for goods they never imported.
Some of the investigated cases go back two years and the spokesman said it was only in the case referred to the police that there was the possibility of identifying the trader using a fraudulent VAT number.
The goods, which would have been bought VAT-free on the premise that tax would be paid in Malta, end up being sold without the VAT authorities collecting their dues and being unable to track down the fraudulent importers.
With VAT not being paid, illegal traders are undercutting legitimate businesses and, according to the director general of the Chamber of Small and Medium Enterprises - GRTU, Vince Farrugia, "illicit trading in all its forms has become a growing menace".
"The GRTU had raised the issue with the government out of concern for businessmen who were implicated in the racket unknowingly and for the sake of having a level playing field in the market," Mr Farrugia said.
The European VAT system stipulates that a VAT-registered individual who buys goods from another member state is liable to pay VAT in the country where he is registered.
In order to exempt a consignment from VAT, the supplier should ensure the purchaser has a valid VAT identification number and the goods are transported or dispatched to the other member state.
However, the system has its flaws, according to Mr Farrugia, because the supplier is not obliged to cross check a valid VAT number with the identity of the individual closing the deal.
"What happens is that fraudulent traders use the VAT numbers and addresses of legitimate companies making it almost impossible for the authorities to track down the illicit traders," he said.
Investigations of such cases are not so straightforward and involve the cooperation of tax authorities from different countries.
The ministry spokesman said that when a person registered for VAT in Malta would have acquired a certain amount of exempt goods from another member state, which are not declared in the tax return, the VAT Department would query the individual concerned.
"If the person states he did not make such intra-community acquisitions, he is first required to produce an affidavit and the VAT Department would contact the tax administration of the member state of the supplier in order to obtain further information about the transactions," he said.
The extent of such fraud cannot be determined by one member state on its own, the spokesman explained, when asked how widespread the abuse was. For the Maltese business community the threat is serious and possibly "much bigger" than what it appears to be, according to Mr Farrugia.
"Complaints from legitimate businessmen keep coming in, especially those operating in the food and pesticide sectors," he said.
The issue of validation of VAT numbers has been on the agenda of EU Commission committees many times and Malta has participated actively in the Commission Anti-Tax Fraud Strategy Group, which is considering new measures to propose to the Ecofin Council to combat VAT fraud.