News | Wednesday, 16 September 2009

Income Tax amnesty under the spotlight

Charlot Zahra spoke to two former Finance Ministers – Leo Brincat and John Dalli – about Tonio Fenech’s announcement of an income tax amnesty two weeks ago, its implications on public finances and whether they had considered granting such an Income Tax amnesty during their term as Finance Ministers.

Leo Brincat Former Labour Finance Minister, 1997-1998 “I had received a similar suggestion that I did not accept”

As a former Finance Minister, what was your reaction when you learnt that Government had announced an amnesty on income tax?
Although in the past, various administrations have granted amnesties, the word “amnesty” makes me shudder in every context, both with regards to public finances and MEPA, among other things.
Especially when there was no reference to it in the electoral manifesto of the current administration.
An amnesty always leaves a sour taste, especially in these times when the common citizen has to pay to the last euro in water and electricity bills and wage earners have to pay income tax on their wages through FSS.
It is also a slap in the face to all those companies who have made huge sacrifices to pay all the taxes and fines due by them.
However at the end I was not so shocked because you expect anything from this Government, especially that it has now lost every sense of fiscal morality, transparency and strategic direction.

In your view, what has led the Government to adopt this initiative? Has it ever been adopted in the past? If yes, when?
Even if the aim was to improve its cash flow to compensate for its failure in the Government stocks that were issued recently – something that has not take place for ages – I believe there was a mix of panic due to fiscal considerations coupled with a malignant intention to agevolate a number of huge fish and maybe also friends of friends.
The worst thing is that in the case of taxes due before the Income Tax Management Act came into force, the Government is not only forgiving the fines and the interests due on them, but is also giving a substantial discount on the original sum due, which means nothing else but an amnesty of what is due to the public coffers.

How do you think that this amnesty will affect Government income – positively or negatively? Why?
It is possible that the Government earns some money which it had almost lost hope of recovering but I believe that although the Government tried to cover the cloth with a pumpkin, it will end up with the pumpkin in its hands and with the cloth still in tatters as it is now.
One cannot even predict how much money the Government will earn since nobody can calculate how many taxpayers will respond to the Government’s call.
Undoubtedly, the Government, both now and during the Budget, will bring the excuse that is doing this to reduce pressure on public finances and avoid the imposition of new taxes on the public.
But at the end the Government will end up penalising those honest taxpayers. Not even Minister Fenech himself seems to be aware of the amounts the Government is owed since he quoted a sum six times higher than that announced by the Auditor-General in the Public Accounts Committee in Parliament.
The country rightfully expects to know a profile of those people who will benefit from this amnesty even if no individual names are mentioned because in times like these, other countries, instead of offering amnesties, do their utmost to stimulate the citizens’ purchasing power. What will happen as a result of this amnesty will only be known when we have suitable profiling of the beneficiaries of the Government amnesty.

Do you agree with those who say that this amnesty will give a bad message to honest taxpayers who have always paid their tax dues on time and at the same time awarding those who were dishonest and did not pay all their tax dues on time or not? Why?
I have no doubt about this, especially since until a few weeks ago, the Government was boasting that in order to allow the economy to recover again, it was ready to let entrepreneurs and self-employed fall behind in their payments to Government so that they are given some breath.

At the time when you were Finance Minister, were there any plans to give such a similar amnesty or no? Why?
I had received a similar suggestion that I did not accept. I also had another suggestion to raise National Insurance and Income Tax but I did not accept that either.

If you were Finance Minister, would you have granted a similar amnesty on income tax or not? Why?
Undoubtedly no, under any circumstance, more and more in these times when there are so many burdened families and nobody wants to carry a cross when somebody with a wider back will remain in enjoyment and celebrating.
I feel that the Opposition should remain vigilant on the Finance Minister until he explains in a convincing way what led him to take such a shameful and anti-social decision as well as giving us the profiling of how many people and what categories of taxpayers will benefit from this amnesty.
I would not be surprised if the Government was also considering also an amnesty on VAT payments but certain employees at the VAT Department have already found him a solution for this problem!
Even newspapers that usually support the Government still have not managed to understand exactly what led the Government to take this drastic, radical and immoral step.
The people rightfully expect to know who are these defaulters and if there are foreign professionals and companies in the list.
The percentage and the mix between the number of small businesses, large ones and self-employed is also relevant in this case.
If the Government is not going to introduce an effective system of law enforcement, then the problem that it is claiming to try to solve will be alleviated for a short period only, even if the scheme is successful.
Time will eventually tell us how many of these defaulters have enough liquidity in these tough times to accept the Government’s ultra-generous offer.
The Government is subsidising those who steal in income tax while at the same time removing the subsidies for common citizens.
Minister Fenech will surely enter into the Guinness Book of Records as the Minister who stretched the boundaries of economic and fiscal pragmatism like chewing gum.

John Dalli: Former Nationalist Finance Minister, 1992-1996, 1998-2007 “When I was Finance Minister we had introduced an amnesty scheme not to collect money but to introduce a culture of fiscal morality”

As a former Finance Minister, what was your reaction when you learnt that the Government had announced an amnesty on income tax?
When I was Finance Minister we had introduced an amnesty scheme not to collect money but to introduce a culture of fiscal morality.
At that time I was insisting on the Tax Compliance Unit to investigate those taxpayers who were not making an honest income tax declaration.
Therefore we had given the opportunity to taxpayers to make a self-assessment of the previous three years and we would take it as correct.
In this manner, taxpayers could have started a fresh page with the Inland Revenue Department.



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16 September 2009


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