09 November 2005

The Web
Business Today

Banks could reduce loan facilities as government attempts to curb evasion

James Debono

Government’s budget proposal to tighten the fiscal grip on building contractors and construction tradesmen by imposing an obligation on banks to ask for fiscal receipts has received a cold reception in financial circles, with sources telling Business Today that banks could respond by reducing loan facilities.
So far contractors, electricians, plumbers and others engaged in construction have managed to evade government’s tightening fiscal net because property developers are not expected to provide banks with a fiscal receipt accounting for such services when applying for loans earmarked for property development.
In order to address widespread tax evasion, the government is proposing legal amendments through which banks will only be able to lend money for property development if the demand for such loans is accompanied with a contract of acquisition and fiscal receipts on the works conducted.

Business Today asked the two major banks for their reaction to the budget proposal but no reply was forthcoming by the time of going to print.
Currently normal non-fiscal receipts are accepted by banks as proof that loan facilities are being used for building development, thus leaving room for abuse.
At present loans for property development are normally taken against a deed of acquisition with the bank acting as a party to the deed.
Sources close to the banking sector have told Business Today that progress payments are normally paid against contractors’ invoices but these still require the certification by the bank’s appointed architect.
Concern in banking circles is evident. Such a measure may increase the bureaucratic process for banks and may also lead to a reduction in loan facilities.
Sources have also told Business Today that at the proposal stage, the developers would not have an acquisition deed in hand as in the majority of cases this is concluded with part bank funding.
Questions sent to parliamentary secretary Tonio Fenech to elaborate on the budget proposal were not answered by the time of going to print.


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