Editorial | Tax amnesty is wrong

A silent scandal is unfurling before our eyes. Through legal notice 419 of 2021, the Ministry of Finance published new taxation rules that will allow defaulting taxpayers to not pay any tax due on the transfer of property purchased before March 2021, against their arrears.

The measure has been roundly criticised. The legal notice indeed suggests that tax defaulters that do not have the money to settle their dues promptly, can only do so by liquidating their property. It sends a very wrong message that those who default on tax payments to finance speculative activities, may also end up delaying settlement of trade credit indefinitely, to the detriment of businesses that supply them. As the Chamber of Commerce said, such practices are extremely damaging and need to be discouraged.

The Malta Developers Association (MDA) disassociated itself from the rules, which allow defaulters to be exempt from tax on property transfers to the extent that they are in arrears. The measure was dubbed an unfair practice by the Chamber of Commerce: “Like every other scheme intended to bring taxpayers in order, this scheme benefits only the defaulters, and does not consider those who have their tax payments in order.”

Malta’s construction lobby – under public scrutiny as the possible benefitter of the rules – said the measure was discriminatory: “The MDA agrees that government should find a way to collect tax arrears from defaulting tax-payers but there are various ways how this can be done without creating an unlevel playing field.”

They recognised that the measure would lead to unfair competition, with anyone benefitting from such incentive being in a position to offer the property at a better price to that of the developer.

But the measure is also discriminatory against people who are not owners of immovable property, and insisted that this is not an amnesty for developers; because developers pay their final withholding tax with every contract signed and therefore, as developers who pay their tax at source, these will not be benefitting from such incentive.

Both the Malta Institute of Taxation and the Institute of Financial Services Practitioners called them “undesirable and untenable”.

Indeed, this newspaper cannot understand how such rules came at a time when Malta’s greylisting had highlighted Malta’s lack of rigour in taking action against defaulting taxpayers – as claimed also by finance minister Clyde Caruana – and yet these controversial rules undermine the spirit of the fightback on the FATF greylisting.

The FATF identified three key areas in which Malta was found wanting and which it has to act upon. These are an increase in focus of the FIAU’s financial analysis on serious tax offences and related money laundering; increase the use of financial intelligence in pursuing criminal tax and related money laundering cases; and improve the identification of inaccurate beneficial ownership information provided by Maltese legal persons.

Malta has in turn pledged to focus its financial intelligence capabilities on tax evasion and money laundering in a commitment to the Financial Action Task Force.

The lack of prior consultation, or underlying rationale or justification, shows that the government must reconsider its implicit endorsement of unlawful behaviour of this nature.

The Nationalist Party is right in filing a motion to have the legal notice repealed. Shadow finance minister Mario De Marco yesterday said the government is obliged to promote tax morality. Yet this legal notice throws fiscal morality out of the window.