People who face high fines and interest penalties for non-payment of income tax are being offered an amnesty in the government's latest drive to recoup some of the tax arrears, which run into €600 million.

Taxpayers who owe money to the Inland Revenue Department can benefit from a 90 per cent reduction in the fines and interest accrued over the years.

Finance Minister Tonio Fenech, who launched the scheme yesterday, said defaulters would have to pay the reduced amount in full by January 15 and give up any objections or claims against the department.

The money collected through the scheme would mitigate the loss of revenue the government is this year anticipating because of the recession. Mr Fenech said the downward turn in the economy could negatively hit tax revenue to the tune of €60 million, with income tax alone registering a drop of €20 million below budget projections.

He admitted taxpayers who had always been regular in their payments to the department would say the scheme was unfair.

"Even I would complain given that I have always paid on time. But the state has the duty to find a balance between taking the long legal road of chasing defaulters, with the risk that money owed would still not be collected, or giving this amnesty and hope to recoup the money," he said.

Mr Fenech ruled out a similar amnesty for VAT defaulters.

Income tax defaulters will shortly receive a letter from the department informing them of the outstanding amount owed and the reduced sum they would pay if they took up the amnesty.

People with tax arrears from 1998 to date will have the penalties and interest deducted by 90 per cent while others with arrears that pre-date 1998 will be asked to pay 75 per cent of the amount due.

Taxpayers would also be obliged to fill in any missing income tax forms.

Mr Fenech said the amount of tax due covered the whole 60-year period since the setting up of the department and the amnesty would also help the department clear up its records.