A scheme to encourage people and companies to pay up their arrears of income tax and social security contributions was announced by Finance Minister Tonio Fenech this morning.

He said that the new scheme is an extension to the one which closed last year. However, applicants may now pay up either in a lump sum or by instalments over a maximum of 18 months.

Mr Fenech explained that the scheme is applicable to taxpayers who have outstanding tax up to year of assessment 2009 and those employers who had fallen back on their FSS and social security payments between 1998 and 2009.

Taxpayers who opt to settle their arrears in a lump sum by October 31 will have interests and penalties reduced by 85 per cent whereas those who pay by instalment and a 30% upfront payment will enjoy a reduction of 75 per cent on the penalties.

Employers who pay outstanding FSS and social security contributions by October 31 will have a reduction of penalties of 90% but those who pay 30%, with the rest by instalments, will have a reduction of penalties of 80 per cent.

Mr Fenech said that in all there were 9,035 employers and individual taxpayers in arrears. In income tax there are an estimated arrears of €570 million - including €258 million in estimates issued by the Inland Revenue Department after no income tax returns were submitted.

Outstanding social security contributions total €95 million.

The minister warned that people who did not honour commitments to pay by instalment would lose the advantages of the scheme.

Furthermore, once this scheme closes, the Inland Revenue Department would impose interest on tax arrears at 1% per month until settlement. Police action would also be taken against those who did not submit FSS documents.