Parliamentary Secretary for Finance Tonio Fenech has defended Government’s intense investigations into income declarations by host families for foreign students, claiming the issue at stake is justice.
Fenech is expected to meet the representatives for the host families as hundreds protest the government’s latest attempt at roping in unpaid tax.
“The issue is justice. We are not burdening people with more taxes, but simply collecting the taxation due which is needed to sustain this country. Do we want the government to collect this money or not?” Tonio Fenech told this newspaper, denying this was a witch-hunt.
But both Vince Farrugia, director general of the GRTU and Alternattiva Demokratika spokesperson Edward Fenech have described the Inland Revenue’s latest tax collection swoop as a negative blow to the economy at a time when income and consumption were low. They insisted Government had to shoulder part of the blame for failing to take corrective measures years ago.
The Parliamentary Secretary insisted: “The principal of income tax is that everyone is obliged to fill in the income they have earned, whether it is a main or part-time activity. The system of self-assessment works with the premise that the inland revenue commissioner will believe your return unless there is a suspicion that the right information is not being filled in.
“This is a sector that carried no VAT on its activity, but it is clear that income has to be declared. The law allows an inquiry into the past eight years from when an assessment is made. At this stage there is no hunting of families. All income is taxable, and host families should not be exempted whilst other self-employed are declaring their income and other host families are declaring their income.”
Whilst the Malta Chamber of SMEs (GRTU) said it is expected that nobody should be exempt from paying their tax, director-general Vince Farrugia said it was government’s fault for having slept on the problem.
“If you have a taxation problem and you slept on it in the past, you have to accept the blame for that,” Farrugia told The Malta Financial and Business Times.
“Malta’s taxation is regulated so as the more income and consumption increase, the more taxation increases in order to cool down the economy. At this present situation, with income and consumption being very low, what you need is to give the economy a push, but instead the government is pushing these people further down. What kept it from collecting the tax years before?”
Edward Fenech, Alternattiva Demokratika’s finance and tourism spokesperson, said the government had to recognise the reality of the situation. “On one hand Government itself bears some responsibility for having ignored the problem for so many years – indeed it would have been correct for Government years back to have instituted a specific tax regime for such activities.
“Furthermore it seems that there was indeed an element of misunderstanding as to the taxability of this income, which was exacerbated by the fact that language schools had failed to supply host families with an annual statement of their earnings in similar fashion to that provided by employers to their employees,” Edward Fenech said.
Vince Farrugia said that easing the tax burden by improving tax collection should not condone any form of exception. Farrugia said a withholding tax should be introduced for supplementary income over and above regular income.
“There should be a solution for who can create economic activity by using their property. We encourage this form of tourism – these are students who look for cheaper accommodation. If we only considered hotel tourism we might as well just build hotels. But that would be environmentally unsustainable. If we have empty rooms in homes which can be utilised for students, a flat rate of taxation should be used for these people who undertake these activities.”
Tonio Fenech said an idea for a withholding tax could be contemplated from now on, although the past assessment will have to be tackled nonetheless. “Many families have declared their income, and it is in a sense of justice with these families that we are seeing that this income is indeed rightfully declared.”
The junior minister also said he doubted the validity of MLP tourism spokesperson Evarist Bartolo’s comments. “What I fear is that Bartolo is not defending families, because with this information we will be getting a closer insight into the income generated by the English-language schools themselves. I hope the objection by these shcools is not because they don’t want to disclose their operations.”
AD spokesperson Edward Fenech said that chasing six to seven years of arrears would place added burdens on these families, calling for credit to be awarded to these families. “A flat-rate penalty on past income is the fairest way of dealing with this problem, so as not to cause an injustice to those other taxpayers who may have declared their income in previous years. Interest and fines should be waived,” Fenech said, who also agreed that an optional withholding tax should be introduced, shifting the onus for its payment onto the language schools who would be obliged to retain and pay over this tax to the Inland Revenue.
Asked whether he feared a negative political impact from the host families, which are mainly located in Nationalist strongholds in the ninth and tenth district, Fenech said his responsibility towards the country “cannot be politically based”.
“What is due will be collected, and Government is ready to discuss an easier way of paying this tax, but we cannot certainly waive what is due. Any income is taxable and nobody can assume they are not taxable.”