21 February 2007

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Fiscal morality and justice

News of government’s clampdown on VAT evasion sends a reassuring signal to consumers and businesses alike. We have seen parliament finally legislating on Monday to have banks produce a list of VAT numbers of third parties supplying services in connection with properties financed by credit from these financial institutions. The amendment to the VAT Act also comes after a long year of discussions with the banks, a sign that consultation was actively pursued in a bid to cut down on this well known avenue of evasion.
But the spirit behind this important amendment reintroduces not just that all important element of fiscal morality, but also of justice. Justice for consumers and SMEs alike who respected the law by producing fiscal receipts, conscious of the responsibility that exists between citizen and state in such an important instrument as taxation. The growth in indirect taxation through consumption, going by the words of the parliamentary secretary for finance Tonio Fenech, reflects the savings that are liable to be made in income tax. To this end, the judicious application of the law is instrumental in a bid to deflect the burden of direct taxation onto consumption.
The more important statement however relates to banks. For years we knew of the possibility to get supplementary credit on property loans for additional repairs and construction, in some instances having only to be backed up by an architect’s certification of the completion of works. This lax attitude left the door wide open for more services to be rendered without producing a VAT receipt. Consumers may have felt they were in for a better deal. In reality, they were being cheated by the simple fact that, if the majority of the goods and services they consume are taxed elsewhere, why should other traders believe they can get away with breaking the law and enrich themselves purely out of robbing the state, and ultimately taxpaying citizens themselves?
Now, in the words of Tonio Fenech, banks are being asked to contribute towards fiscal morality, something which should have been taken for granted when considering the standing enjoyed by our leading financial institutions. Additionally, the new law will improve the synergy between the Commissioner for Inland Revenue and the Commission for Value Added Tax. Together these two important functionaries can start mapping out a proper correlation between the levels of income being declared and the output that has generated that level of income. Such a move sends a signal to those who felt cheated at the lax application of the law with certain small traders who were not in the habit of producing VAT receipts, that things may be changing. But it also strengthens the idea of a level-playing field, ensuring that those who break the law do not eat into the market of those who respect it.
The same might be said for bar and restaurant owners. Many are those who feel the brunt of illegal competition when complaining that the new smoking laws which banned smoking in bars and restaurants, are not being truly enforced. Owners lament that those who respect the law lose out on customers who instead choose establishments that are flouting the smoking laws.
Another sector which entities such as the Chamber of Commerce are taking action on is the illegal competition between groupers who bypass the Hal-Far groupage complex. By law, any groupage – the consignment of goods carried for commercial purposes and destined for more than one trader – has to land at the Hal-Far groupage complex, as the authorised landing placed for the unloading of groupage consignments. This includes paying haulers the fixed rates to transport the consignment to the Hal-Far complex. Even the unloading of groupage consignments is to be carried out at a place and time as established by the authorities. Victor A. Galea, the president of the Chamber of Commerce, has lamented the lack of market surveillance at the points where illegal traders have been disembarking from ferries without paying any VAT, eco-contribution, or other taxes. The problem is creating economic complications, in terms of unfair competition, and loss of turnover for companies and foregone tax revenue for government.
Here again, the government must actively follow the progress registered in aligning banks with the provisions of the VAT Act and ensure a more harmonious free market. Fairness and respect of the law are paramount.

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