Finance Minister Edward Scicluna has announced five measures which will make it easier for those who are in default of VAT payments to regularise their position.

This extension would only apply to those who had already been determined as eligible

In the past, individuals or companies that were in default found themselves caught in a system which quickly became unsustainable, as interest accumulated and made it harder and harder for them to get back on track.

“We have to learn from the past and see where we can improve the system,” Prof. Scicluna said, stressing that the Government never looked at interest and fines as being a source of revenue, but rather as a deterrent.

“The interest rate and fines were very high. You might even describe them as ‘usury’ for those who fell behind and got caught in the downward spiral, as it made it very hard for them to ever catch up,” he said.

The measures are aimed at encouraging those in the black economy to register for VAT by making the system more “humane” for those who lapse, while still remaining firm with those who repeatedly or stubbornly defaulted, whom he described in no uncertain terms as “parasites”.

The main measure announced yesterday is that the interest rate on tax due will go down from 9 per cent per year to between 6 per cent and 6.5 per cent.

VAT amnesty is extended

This will be introduced through an enabling law expected to be presented in Parliament, which means that the rates can be reviewed at regular intervals and changed by means of a legal notice, rather than through new legislation.

In order to reduce the accumulation of interest and fines, any payment made by individuals or companies in default will be apportioned towards the tax due and only after that has been settled will subsequent payments be made towards the fines and interest, reversing the current system.

The Government will also extend – for the fifth and final time – the deadline for those eligible for the amnesty announced in the 2012 Budget. Prof. Scicluna stressed this extension would apply only to those who had already been determined as eligible for the amnesty, in order to give them a chance to regularise their position.

“There are a number of companies and individuals who had started the repayments and then stopped, as well as others who had not received their circulars stating that they were eligible for the amnesty. Only these will be allowed to benefit from the extension in deadline and the VAT Department’s Internal Audit unit will be verifying each claim to make sure that it is done fairly,” Prof. Scicluna said.

Administrative fines on those who register late for VAT would also be capped, reflecting the merger under way of the Government’s three revenue-collecting departments (Inland Revenue, Customs and VAT) to form the Department of Revenue headed by Commissioner of Revenue Marvin Gaerty. The cap will be announced in the coming weeks, and Prof. Scicluna said he hoped that this would also encourage companies and individuals to emerge from the black economy. The merger will also mean that any companies being investigated would only be put under scrutiny once – and not as is currently the case when each department might have carried out its own investigation.

The Government will also be removing the €15-a day-fine on payments imposed by court – which accumulated rapidly and often ended up putting the hapless defendent in jail for not having paid.

There are around 35,000 individuals and companies registered to pay VAT (apart from those who are exempt etc.). Although VAT income is quoted as being around €580 million a year, the Director General for VAT Charles Vella explained that this amount was very inflated as it included estimated revenue, interest and fines. He said that an exercise had been conducted with the Treasury Department and the National Audit Office which concluded that a more realistic figure for the amount of “collectible” VAT was €50 million.

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