Malta’s reputation as one of the EU’s worst VAT evaders was an unfair reading of statistics and would soon be reviewed, according to a team of Finance Ministry economists.
They told the Times of Malta that a new EU-wide report would be published in the coming months that would upgrade Malta’s position as the country with the third-highest rate of VAT evasion in Europe.
A European Commission report published last year found that a staggering 35 per cent of all expected VAT revenue in Malta had gone uncollected in 2014.
The VAT gap study found that Malta had lost out on €351 million in uncollected revenue in that year alone. However, according to the Finance Ministry, the figures published by the Commission were not a true reflection of the level of VAT evasion on the island.
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Instead, these “theoretically driven” calculations were the result of “challenges associated with measuring rapidly changing economic sectors in national statistics”, the experts said.
The Ministry for Finance disagrees that Malta has one of the worst problems of VAT evasion in Europe
Asked for updated figures, the tax team said this year’s report was not yet final. However, follow-up questions on Malta’s apparently rampant evasion were met with raised eyebrows.
“The Ministry for Finance disagrees that Malta has one of the worst problems of VAT evasion in Europe,” the experts said.
READ: Malta is the EU's third-worst VAT offender, EU finds
So what figures can shed light on the level of VAT evasion?
According to the government’s economists, there are a few different numbers to look at.
To have the full picture, one has to first keep in mind that Malta’s VAT rates are among the lowest in Europe. Malta’s base VAT rate is set at 18 per cent, with two revised rates of five and seven per cent.
Different rates of VAT apply in different European Union Member States, ranging from 17 per cent in Luxembourg to 27 per cent in Hungary.
Despite the island’s relatively low rate, the economists said VAT revenue expressed as a percentage of GDP was actually higher than the EU average. The amount of VAT collected was also higher than the average Maltese household consumption.
This, the experts believe, means that while VAT evasion was still a matter of concern for the tax authorities, the picture was perhaps not as bad as the Commission report had suggested.
“A proper assessment of the problem of tax evasion needs to be based on multiple indicators and not solely on these VAT gap calculations,” the ministry experts said.
The ministry was contacted following a series of reports on the Times of Malta on a VAT evasion crackdown by the authorities.
VAT inspectors this month teamed up with a private forensic auditing firm to help in a wide-ranging investigation into the use of new VAT evasion software.
The software scam is believed to be costing the public coffers millions of euros in unpaid VAT every year.