When value added tax legislation was reintroduced 12 years ago there were great expectations. It came about in the midst of much controversy, both because it is an indirect tax, and also because of divided political opinion within the opposition Labour Party which, as such, did not agree with the tax. The party had greatly altered the tax during the 22 months it was in office from 1996 to 1998. It replaced it with other taxes which, in formal terms were not seen to be as efficient as VAT as a tax on consumption.

The Value Added Tax had two principal objectives. The first was to broaden the tax bases by bringing services into it. Hitherto indirect taxes were levied on goods only, through customs duty and excise duty. VAT was intended to replace customs duties, to reach out to a wide range of goods, albeit exempting some and zero rating others, and to extend its clout to a very wide spectrum of services.

While, through exemptions, zero-rating and a reduced rate on some goods and services, VAT was expected to yield much more than customs duties, comparing like with like before Malta joined the European Union and did away with duties on goods imported from it. That belief was based on the obvious – services were now to be taxed, subject to exemptions – and also to an analysis of the growth in the island’s development which, as in all developed or reasonably advanced economies was becoming skewed towards services.

Most countries in the world have moved to this approach, a wide-ranging consumption tax, notwithstanding that it pushed up the cost-of-living during the year it is introduced or raised. The second major objective of the Value Added Tax was to establish a clear audit trail which, when linked to the tax on income, would start reducing tax evasion and would eventually flush out the worst perpetrators of it.

VAT is now here to stay. The Labour Party no longer opposes it, though it might extend exemptions and zero-rating when it is returned to office. And tax is an important pillar of the government’s revenue, especially since the top rate was raised from 15 to 18 per cent several years ago.

So many years on, can it be said that VAT is meeting its two major objectives? I would not rush to say yes. The tax on consumption is now yielding more and more income, a natural development given its extension to services and the growth of the economy, albeit at a stuttering rate. But is VAT yielding as much as it should yield? Put differently, is it achieving its objective in terms of the audit trail exposing tax evaders? I think not.

Evasion is still rampant in the Maltese islands. Paradoxically, properly audited companies find it harder to evade, although very few innocents are to be found. But the fear of those who opposed VAT that businesspeople would load personal expenses onto their reported costs, though real and to some extent in play, is arguably not the largest culprit of evasion. Candidates for that category are mostly to be found in the self-employed and small business categories.

Clearly the audit trail is not working as effectively as once hoped. Nor are consumers contributing enough to help the VAT and Inland Revenue departments to uncover evaders. Another reason for the relatively weak showing of VAT as a major tool to snare its own as well as income tax evaders is the fact that the department might not have enough human resources.

That is a reflection of the irony that continues to prevail in the public sector. It is bloated, little doubt about that, which is why the Finance Minister in his 2011 Budget speech revealed that he was putting a brake on recruitment. Yet there are categories of key employees which experience chronic shortages, relative to the volume and quality of work they are expected to cope with. Nurses are the main example. Tax personnel are not that far behind, a gap that will not automatically be covered when the revenue departments are finally united into one unit.

I was mystified by a report in The Sunday Times last weekend that two women who sold souvenirs and honey to raise funds for their church at an event showcasing traditional goods were hauled before the courts, found guilty of not providing a VAT receipt and fined €700 each.

Never mind the subjective interpretation of their action, namely that they were conducting an “economic activity”, which borders on the ridiculous. Was it really necessary to take legal action against the two women, involving I do not know how many man-hours by the personnel of the VAT department? Granted that a little sin, if a legal sin it was, can lead to bigger ones. But would not the department’s time have been more wisely spent had it been allocated to go after bigger fish?

A similar question might be addressed at other activities of the revenue departments. This is not an argument to ignore failings, but surely resources should be allocated to the point of highest potential return. It is essential, also for the sake of fairness and equity, that tax evaders are caught. For that same reason it is important that scarce human resources be used as efficiently and sensibly as possible.