Millions of euros are believed to have been lost as a result of fraudulent practices by VAT department staff going back a number of years, The Sunday Times has learnt.

At least eight VAT department employees, including a pregnant woman, were arrested last Friday after a three-month investigation by police. Sources said that a number of businessmen were also being investigated.

The department was defrauded of a large sum of money during the period of investigation, though the figure is expected to rise substantially as the full extent of the crime becomes clearer.

The case could well turn out to be one of the biggest cases of fraud involving a government entity. The figures owed in VAT could rise in the coming weeks since sources said the findings are the "tip of the iceberg".

The fraudulent practices were apparently orchestrated by a criminal network made up of a number of VAT department employees in collusion with businessmen. Intermediaries were also involved.

"Whoever was involved was assured they wouldn't get caught," the sources said.

The fraud was difficult to uncover because the perpetrators covered their tracks well.

The Sunday Times is informed that the wrongdoing came to light after a businessman who had been approached passed on the information to Finance Minister Tonio Fenech last December.

It is understood that Mr Fenech decided to immediately hand the case over to the police rather than conduct an internal inquiry.

Those arrested to date do not occupy senior positions within the department, though investigations are continuing.

About 20 plainclothes officers entered the VAT offices in Birkirkara on Friday afternoon, targeting specific employees and computers. In what was the first ever such search at one of the government's main tax-collecting units, the police confiscated equipment.

In a brief statement last Friday, the government had said: "The government will not tolerate any abuse and for this reason expects that every allegation is investigated and all the necessary action taken according to law," the statement said.