Some €200 million in VAT went uncollected in 2015, according to a new EU report.
The VAT Gap – the difference between the amount expected to be raised through VAT and what was collected by the authorities – was outlined in the latest yearly VAT review by the Centre for Social and Economic Research.
The report is a precursor to one expected be published by the European Commission in the coming weeks.
According to the CASE report, Malta’s gap was double the size of the EU average, putting the island in seventh place among the 28 Member States.
Forecasts appear to have been on the money
When the Times of Malta spoke to Finance Ministry experts last August, they downplayed previous reports’ findings that put Malta among the worst offenders.
Malta’s reputation as one of the EU’s worst VAT evaders, the experts said, was an unfair reading of statistics and would be revised in new reports.
Their forecasts appear to have been on the money, because the latest report does show Malta registered a significant improvement over previous years, with the figure dropping by more than half over 2014.
A considerable portion of the decrease was attributed to changes in what is known as Malta’s VAT liability – the amount of potential tax to be collected.
So, what changed in 2015?
According to the report, one of the most important changes that affected VAT estimates in Malta was the EU-wide legislative reform regarding ‘place of supply’ for e-services.
Read: Maltese VAT schemes raise suspicions in Brussels - French media
In a nutshell, before 2015, VAT charged on electronic services, such as online betting, was invoiced to the country where the provider of services was registered. However, since the reform came into effect, VAT on such transactions is now paid to the country where the customer resides.
“This change had a profound impact on countries with a large export of electronic services, such as Malta,” the report reads.
The report also says that Malta enjoyed the largest increase in VAT compliance in the EU – more than 25 per cent over 2014. The EU average increase in compliance was just two per cent.
Read: VAT evasion not as bad as it is made out to be, economists argue
In recent months, this newspaper carried reports on VAT evasion, highlighting the use of new software that investigators believe is helping unscrupulous businesses dodge millions of euros in taxes.
The authorities have found local companies using the software and are expected to rake in substantial amounts of taxes due following extensive investigations.