Malta’s VAT collection mechanism is being dubbed one of the most inefficient among the EU’s 28 member states, depriving the exchequer of tens of millions of euros in potential revenue every year.

A technical study published by the European Commission shows that, in 2012 alone, Malta had the potential to raise an additional €241 million from VAT which, however, were lost.

These figures show that there is a lot of work which could be done

According to the study, which calculates the VAT gap of EU member states, Malta’s efficiency in recouping VAT is one of the worst, with the island losing about 31 per cent of potential VAT revenue every year.

The study said that while the island in 2012 had a potential of raking in some €777 million from VAT, it only got €536 million.

Moreover, the situation has been getting worst over the years. Back in 2009, it was estimated that Malta’s VAT gap stood at 14 per cent; three years later it stood at an average of 16 per cent, almost double the EU average.

European Taxation Commissioner Algirdas Semeta said member states had to up their game and take decisive steps to recuperate this public money. “The VAT gap is essentially a marker of how effective – or not – VAT enforcement and compliance measures are across the EU. These figures show that there is a lot of work which could be done,” he said.

Loss of VAT revenue is not only a result of tax evasion or fraud, which is considered to be rampant in Malta. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, among other things.

Though the study shows that Malta has one of the highest rates of uncollected VAT in the EU, the issue exists in all the 28 member states. The countries with the highest uncollected VAT in 2012 were Romania (44 per cent), Slovakia (39 per cent) and Lithuania (36 per cent).

The lowest VAT gap was found in the Netherlands and Finland – both at five per cent of expected revenue – and Luxembourg, with a VAT gap of just six per cent.

Although, under EU rules, taxation is a national competence, the EU has been introducing various measures to reduce the amount of VAT evasion as much as possible. These include a new mechanism, introduced last year, allowing member states to react much more swiftly and effectively to sudden, large-scale cases of VAT fraud.