A legal opinion which allows defaulting taxpayers to offset their contributions by the tax on property sales is not an amnesty but the first step towards a change of mentality and towards the beginning of the recovery of some 5 billion euros owed by the government in taxes, said Finance Minister Clyde Caruana. Malta Independent on Sundays.
This newsroom told Caruana about Legal Opinion 419, which has been called an “amnesty” by the opposition and some constituted bodies. They say the regime discriminates against law-abiding citizens who pay their taxes on time.
But Caruana insisted that this is not an amnesty, nor is it intended to favor one sector or another. Instead, he says, it’s a way to get people and businesses to pay money that has been owed to the government for years.
Caruana said he was surprised by the recent criticism, saying he had already announced plans to help the government collect tax backlogs in March.
âAt the time, I said that the government was aware that some companies had liquidity problems, and we introduced a number of measures, such as the tax deference regime. I also said that some of these businesses that had cash flow problems were rich in assets, like property and land. We have lowered the tax on real estate sales to encourage them to sell some of their assets and generate the cash they need to pay their tax bills.
Caruana said that despite the move, little enthusiasm has been shown, with individuals and businesses facing tax money showing “no real interest” in paying their dues.
In order to shake things up, the government announced in the 2022 budget that the arrears tax would drop from 3.6% to 7.2%.
“Incentive, not amnesty”
âUnder no circumstances do we waive their taxes, penalties or interest. When amnesties were granted in the past, back taxes were written off. I do not do it. What I’m saying is we give an incentive to those who are wealthy in assets but have cash flow issues. It is an inducement, not an amnesty.
Caruana argued that this was a win-win situation, where the government would collect the taxes and those who paid the tax would not find themselves in an even more precarious financial situation.
“Put simply, if they don’t sell their property they will not be able to pay their taxes and the government will not collect a dime from the money owed to it,” the finance minister said, adding that he “does not cancel anything from the government’s record.”
Caruana was asked to explain in more detail how the program works.
Generate money to pay taxes
âLet’s say someone owes the government half a million euros and sells land for half a million. The government takes its half a million, but it does not charge the person the tax owed on that sale of property. He added that the tax due in such a case would represent a small percentage of this â¬ 500,000 transaction, so the amount âforgivenâ would be much less than the amount paid in arrears.
âIf we don’t, the tax owed to the government will never be collected. Some companies are a bit strapped for cash right now, so collecting their dues would take a long time. And it comes at a cost: if the government does not collect taxes, it will in turn have to borrow more and pay interest on those loans.
Regarding the argument that this scheme discriminates against people who pay taxes on time as well as cash-strapped businesses that have no assets to sell, Caruana said, âSo should- give us an amnesty for everyone? In any case, it is not an amnesty. We are simply helping those who have assets dispose of them in order to generate the cash flow they need to pay their taxes.
Caruana noted again that this was not a new idea. The government took the first step in March by lowering the property tax. âWe wanted to test the waters to see what the willingness to pay the taxes owed was. We hung a carrot, but it didn’t have any results. It was clear that those who owed the government had no interest in doing so. This is why in the Budget, we have decided to increase the default interest from 3.6% to 7.2% in 2022. â
âI hope people don’t start complaining that we’re doing too much to get people and businesses to pay their taxes. We have to decide what we want. The opposition accused me of discrimination in this matter, but labeled us as a party of attrition when we raised the interest rate on the taxes owed. They have to decide what I am.
In comments to The Times of Malta this week, the Finance Ministry said the social partners who are now filing complaints did not complain when they were consulted in March. Pressed further on the matter, Caruana said the Chamber of Commerce had quoted him on its own website and his speeches were reported in the press. âI was very clear at the time. I have not tried to hide it, and it is unfair to say that this diet was introduced in a quiet way. But, at the time, no one complained.
When asked why complaints are coming in now, Caruana said that “it was either that no one was paying attention at the time or that there was a political agenda.”
The government “used as an overdraft”
Caruana said that over the years the government has been used as a âshortcutâ for businesses.
âIf you don’t pay tax, the penalties and interest are much lower than they would be if you defaulted on your loan or overdraft. So they âborrowâ money from the government instead. Some people have accumulated huge tax bills but at the same time have become rich in assets. “
Tax due may include income tax, national insurance and value added tax. When asked why the government is introducing a program that helps individuals and businesses who have potentially defrauded the state and their employees by not paying their NI contributions, Caruana said, âI understand what you are saying, but there is a choice to be made. We can either close our eyes and not collect the dues like the previous finance ministers did and forget about the five billion, or we can do something, not only on what needs to be collected from now on, but also on what. which should have been collected in the past. ”
âSome people might argue for a tougher approach and tell you to start jailing people for uncollected taxes. If we were to take this approach, arrest people and confiscate property, there would be so many people involved that everything would fall apart. I have to choose between this terrorist approach that gets us nowhere, because taxes will not be collected, or launch a process that will start to change the way this country thinks. ”
More to come on tax collection
The opposition said it would table a parliamentary motion to withdraw the legal opinion. When asked if he was adamant about continuing this program, Caruana expressed his belief that the program is the right approach.
âThere will be strong attempts to prevent us from making a difference in this country, so that the taxes owed are not collected. It’s easy to speak out in favor of tax evasion, but when you actually hear about it people will start attacking you because it affects them. I’m holding on on this.
âBefore the budget, during the consultation, some called for an amnesty. But I said ‘no way’, I will not grant amnesty to people who want to pay their taxes. I want to see that the dues are collected.
Caruana said he was sure there would be attacks on other government efforts to collect tax arrears in the future, but assured that there would be “more to come on tax collection. taxes “.