The board tasked with ensuring that people do not under-declare the value of their property to avoid tax has no technical expertise and relies on real estate magazines as a point of reference for prices, according to an official report.
Moreover, when probed, the board failed to explain why certain prices were accepted while others were referred to government-appointed architects for review, the Auditor General said.
The report was about a performance audit of the Capital Transfers Duty Department within the Finance Ministry that processes duty owed to the government when properties are sold.
The board in question is an internal body within the department and is tasked with verifying whether the declared value of a sale is correct.
The Auditor pointed out that the board did not have any formal terms of reference or guidelines and did not document the reasoning behind its decisions.
Also, since none of the board members had any technical background on property evaluations, they kept themselves informed by, among other things, reviewing property publications. This, the Auditor said, created problems because most publications listed the asking price, which very often varied greatly from the market value.
Gozitan properties are scrutinised more because, unlike with Malta, property sold on the sister island needs to include detailed plans.
If the need arose, the board could appoint an architect to review the property valuation to see whether it reflected the market price.
But the report noted that, for example, properties valued between €50,001 and €100,000 had a higher probability of being referred to architects.
In fact, almost 75 per cent of applications valued in this bracket had a property inspection in 2008.
Also, in 2008, half of inspected properties, with the exception of garages, were deemed to have been under-declared and their value had to be revised upwards - especially plots of land and flats.
Yet, despite this volume of revisions, a case study by the Auditor's office revealed that the board had still accepted declared property valuations that were below market price.
"There are no further checks and balances following an acceptance of the declared value of property by the internal board. Erroneous declarations of property will lead to a loss of revenue," the report said.
The report also referred to concerns raised by the Malta Institute of Accountants on the absence of a set method that calculated the value of property. As a result, the valuation could not be verified or challenged, it said.
The Auditor noted that the Board of Special Commissioners - responsible for dealing with the buyer's or seller's objections - had not been functioning since 2004. The board was re-constituted in September 2009 and will now inherit the 595 pending cases.