Unscrupulous entrepreneurs have found a way to avoid paying millions of euros in VAT by using software to under-declare sales, the Times of Malta has learnt.
The Commissioner for Inland Revenue is poised to crack down on the misuse of digital cash registers as the use of software that allowed businesses to delete sales was spreading.
VAT Department sources said that the practice was costing public coffers millions of euros in tax losses.
“This is something that was introduced only a few years ago but has spread like wildfire. The losses in tax revenue are extensive and it’s only getting worse,” a VAT inspector who spoke to this newspaper on condition of anonymity said.
He said the practice was particularly prevalent in the catering industry and the authorities had been alerted to it after inspectors noticed that declared sales suddenly stopped tallying with other figures, such as an establishment’s stock.
According to a business owner familiar with the contentious software, companies involved in the scam would hold on to receipts that customers discarded following a sale. These contained a code that, once keyed into the system, allowed businesses to delete the sale as though it never happened, he said.
Specialised team set up in tax unit
“Have you ever noticed those small bins full of receipts next to the touch screen cash registers? Businesses are collecting the receipts to delete sales and many of them are doing it in your face,” the business owner, who also asked to remain unnamed, said.
The government is set to begin conducting forensic tests of digital point of sale systems with the aim of establishing whether any sales had in fact been deleted.
A spokesman said a specialised team had been set up within the Tax Compliance Unit to review the findings of a study on the scam recently conducted for the government by a reputable audit firm.
Meanwhile, the Joint Enforcement Task Force, a recently set up collaborative entity encompassing technical experts from various government departments, is investigating various digital point of sale cash registers currently in use across the island.
The office of the Inland Revenue Commissioner said businesses would soon be formally warned that any such misuse would not be tolerated.
A spokesman said the government had recently bolstered the VAT law by adding an amendment specifically aimed “to combat this malpractice”.
The law now not only says that it is a criminal offence to destroy, erase or conceal any proof of sale information, but also extends this to cover the distribution of software that enables such practice.
“The objective is to go after both suppliers of such software and businesses that are found to be in possession of it,” the spokesman added.