Evasion has been the bane of public finance practically since income tax was introduced in the late 1940s. It is not restricted to that. Customs and excise duties are evaded. So is Value Added Tax. Evasion is to be found wherever there is taxation, but probably few countries are so hell-bent to evade as Malta.

Needless to say, this denies the Government much-needed revenue. If evasion were slashed, the deficit would probably be much lower than it is. Evasion robs the Government and is unjust towards those who pay their dues.

It prevails notwithstanding that Malta is nominally a Catholic country and evasion is fiscal immorality and, as the Bishop of Gozo reminded publicly not so long ago, a sin. Various efforts have been made and are made to curb tax evasion. To the extent that they succeeded, they only scraped the tip of the iceberg. Inspectors in the various areas of taxation seem to take one step forward and two backwards.

Efforts at departmentalP level sometimes hit targets, but hardly enough. A Tax Compliance Unit was set up, but to little avail.

Some defend evasion by saying that tax rates are too high. That was the case with the introduction of income tax and for 40 years thereafter. The top marginal rate was a bruising 65 per cent. (Although, it has to be said, only about 11 taxpayers were caught at that rate when it was finally cut away by the late George Bonello du Puis.)

Its main harm had been to give an excuse to corporate taxpayers not to distribute profits. Kept as retained profits they were charged at 35 per cent. If distributed they would have risked higher rates. That disparity is always a danger.

It was removed at the same time that the top marginal rate was snuffed out. Profits could thereafter be distributed to shareholders who, if they were on the new top marginal rate of 35 per cent, had nothing extra to pay. Did that help to cut evasion? Hardly.

In the corporate sector a lot of evasion takes place by loading personal expenses of shareholders and directors, often one and the same, on to company expenses, thus raising the non-taxable deductible amount. Various former ministers of finance, including your columnist in the 1980s, warned auditors to keep a sharp eye against the practice. It still goes on with impunity.

Probably few countries are so hell-bent to evade as Malta

There was a time when details of tax returns were published in an effort to sort of name and shame. A change of government in the 1980s saw that practice abolished. Impunity was therefore strengthened.

When the Value Added Tax was introduced by then Finance Minister John Dalli, one major argument in its favour, which I also made mine, was that it would establish a clear audit trail and make it more possible to identify and punish evasion.

It has not quite worked out that way. We hardly ever hear the audit trail mentioned nowadays.

At a time when other countries, such as the UK, are fighting a war even against tax avoidance, which is not illegal, evasion still takes place in Malta.

The issue was addressed in the Budget Speech for 2014. The Finance Minister announced several taxpayer-friendly measures, such as fixing the tax rate on rental income at 15 per cent, the bottom rate in our graduated system of income tax.

That should encourage owners to declare rents received less allowable expenses. How many will do so? A similar measure was taken by John Dalli when he fixed the rate on interest-earning deposits and on bonds at 15 per cent withheld at source.

That worked to a considerable degree due in part to the fact that the Inland Revenue Department can check a taxpayer’s return against reports submitted by the banks. In short it is a good three-legged arrangement. There is no third leg in the rent sector. So we have to wait and see what the department reports in two or three years’ time.

Meanwhile, a major development has taken place which could help attack evasion, conceived by former Finance Minister Tonio Fenech.

The income tax, VAT and customs and excise duty departments are now coordinated by a single overseer. That should enable better audit trails to be established, hopefully leading to stricter enforcement. Such an outcome is import-ant if the revenue forecasts are to be reached, and also from the standpoint of social justice. Especially so once a new tax pardon on undeclared income, at a cost, also announced in the Budget Speech, has run its course.

Better control of social security contributions, which are also prone to evasion in the black economy, is also required.

There will always be some evasion but at least, not at scandalous levels.