Fight against VAT fraud


The provision of free public services like education and health care critically depends on the ability of the government to collect direct and indirect taxes. In an ideal world, projected tax revenues can be used to fund public services that most people take for granted.

The European Commission report on the “VAT gap” of EU member states provides valuable information on the efficiency of different countries in collecting value added tax. The committee defines the VAT gap as “the difference between the revenue expected in EU member states and the revenue actually collected”.

The main figure in this report is that in 2019, EU countries lost € 134 billion in VAT revenue due to inefficiencies in collecting taxes due. Malta has collected 287 million euros less than expected. This is not good news for most EU Member States or for the European Union as a whole.

The commission led by Von der Leyen presented an ambitious plan to revive European economies after years of sluggish growth made worse by COVID.

The European Green Deal is an essential and forward-looking strategic element to stimulate sustainable development in the Union. However, its success will depend on finding the money to develop, purchase and implement the required technology. Some of this funding will come from investors, who will rightly expect to earn interest on the money they lend. Another good chunk of the money needed has to come from taxpayers.

Tax evaders – who do not pay their fair share in such projects or in public services – place an unfair burden on honest taxpayers. They must be prevented from doing so by determined political action.

More than most other EU Member States, Malta needs to address its inefficiency in collecting VAT and other taxes. It can do this first by mobilizing the political will to try to convince everyone that tax evaders are criminals who deserve no impunity. The gray listing of Malta has recently made the government aware that it needs to do more in this regard. This is the opportunity to embark on a persuasion and enforcement campaign.

It is a shame that in 2019 the biggest increase in the VAT gap was recorded in Malta – 5.4% compared to 2018. During the same period, 18 Member States reduced their VAT gap.

Another unflattering figure for Malta is that in 2019 its missing VAT revenue was equivalent to 23% of the amount the tax authorities should have collected. Only Romania and Greece had worse results in terms of VAT compliance.

There are a number of factors behind the VAT differential. The main causes are tax fraud, tax evasion, evasion and optimization practices as well as bankruptcies, financial insolvencies and administrative errors.

Today, the method used by the commission to determine the VAT difference does not allow us to go into more detail on these causes. Encouragingly, EU tax experts are considering more focused studies in the future that would identify these distinct factors.

If Malta is to improve its track record in tax enforcement, it must address the lack of political will to always do the right thing in tax management. Policymakers need to adopt good economic governance practices based on fiscal rectitude.

The EU report states that ‘we must make a joint effort to crack down on VAT fraud, a serious crime that takes money out of consumers’ pockets, undermines our social protection systems and depletes government coffers. “.

If the government is to improve its reputation, it must make public its plans to tackle the spread of the underground economy, tax evasion and evasion, and it must apply the regulations consistently.

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