Tax evasion comes in different shapes and sizes. People in certain positions can use their resources to whisk away their money far from the eyes of the inland revenue authorities to offshore tax havens with a little help from accountants and lawyers who have little respect for fiscal morality. Others are happy not to pay VAT on their restaurant bills by paying waiters who indicate what they are owed by scribbling a figure on a slip of paper.
Few realise that if you care about preserving government programmes for the young, the old, the infrastructure and social services for the most vulnerable, you should be actively supporting schemes that tackle the injustice caused by the shadow economy, especially on those who pay their tax dues on time and to the full extent that is due.
The announcement made by Finance Minister Edward Scicluna that a new unit was being set up to target tax dodgers through a joint effort between the inland revenue, VAT and Customs departments is, therefore, welcome news. Yet, similar attempts in the past have produced unimpressive results. Former finance minister Lino Spiteri had set up a working group to promote fiscal morality. Another former finance minister, John Dalli, had introduced a VAT ‘receipt lotteries’ system to encourage consumers to pay VAT and ask for a receipt.
Still, according to studies made by Friedrich Schneider of Johannes Kepler University in Linz, Austria, in 2015, Malta’s shadow economy was one of the largest in Europe even exceeding that of Italy and Greece in relative terms. So the question needs to be asked whether this new drive to promote fiscal responsibility is just another pious intention or is really backed by the political will to control tax abuse.
It seems the Finance Minister was reacting to the vociferous complaints of organised business that are unhappy with the influx of undeclared goods coming to Malta, particularly through Sicily, and, presumably, not paying tax. Such irregular activities often involve the use of illegally-employed labour under precarious conditions.
The Malta Chamber of Commerce, Enterprise and Industry is more than justified in insisting that all business people abide by the same fiscal and employment rules and regulations. When a government turns a blind eye to abuses in these areas, it will be encouraging moral hazard that entices people to take risks with breaking the laws knowing they will have a fair chance of getting away with it while increasing their profits in an irresponsible way.
Failing to deal with tax abuse will hurt everyone but the most vulnerable will suffer most. Lack of enforcement of fiscal measures could be simply the result of lack of trained resources. But one suspects that, often, the cause is more likely to be political convenience that aims at electoral support, especially nearer a general election.
Prof. Scicluna’s insistence that the task force was not there to ‘scare people’ may have looked too meek and apologetic for those who believe that the future of our social services depends on fiscal responsibility and resolute enforcement action. One hopes such a statement does not betray a soft touch approach to tax evasion by both the big fish and the small ones in society.
Tax evasion is at its strongest in cash-based economies and Malta falls under this category. Today, there are technological tools that keep an audit trail of most business transactions. A combination of structural reforms in fiscal management and the adoption of technology will ensure fiscal responsibility by most.