This newspaper devoted the best part of a page on Ash Wednesday (21 February) to report on the proceedings at a seminar organised by the Malta Institute of Management. The highlight of the report revolved around a speech by Parliamentary Secretary, Tonio Fenech, who declared that “tax compliance controls needed to be strengthened”. The theme amounted to a plea for tighter tax controls.

Tax evasion is a persistent scourge which is, incidentally, double-edged.

It is worth recalling that, as long ago as 13 June 2000, John Dalli, who was then Finance Minister, had some sensational things to say about the state of Malta’s finance prevailing at the time.

He lamented that some 30 per cent of taxpayers, who sent in their income tax returns in the preceding year, failed to declare their incomes properly. No fewer than 30,047 individuals “failed to declare income which collectively amounted to Lm38.2 million, and on which at least Lm3 million in income tax should have been paid”.

Lm27.5 million of these were in the form of earnings undeclared by a core group of 4,120 taxpayers. Thirty-seven of these taxpayers failed to declare earnings of about Lm300,000 each, and the collective total undeclared by 37 of these same taxpayers amounted to Lm11.8 million.

Another 41 taxpayers failed to declare earnings ranging from between Lm50,000 and Lm100,000, and one taxpayer was alleged to have distinguished himself by failing to declare a turnover of Lm1 million. No fewer than 22,163 taxpayers did not declare incomes from bank interests and other investments.

Culture of tax evasion

In one breath, Mr Dalli was highlighting the government’s new-found ability to monitor the poor performance of taxpayers, as well as exposing the poor record of the Inland Revenue Department in claiming Caesar’s due from taxpayers.

The latter weakness had been regularly highlighted by the Auditor General, who registered his concern in successive annual reports.

It has to be noted, in fairness, that the “culture” of tax evasion flourished under different administrations, but it has also to be pointed out that the ruling administration has been in office for practically the last 20 years, and Mr Fenech is still pleading for tighter controls.

It is a matter of some concern that ministers do not spare a modicum of time for an examination of the administration’s conscience. A show of righteousness or mere repentance is not enough. The tax regime in these islands must be made credible and efficient – and it must do its own thing without fear or favour.

Failure to achieve these standards would trigger even more evasion and reinforce a culture which is self-defeating in an economy aspiring to democratic development.

Implications

It is for this reason that Mr Fenech deserves all round support if he means what he says.

One important implication, it seems to me, is that the tax regime must be sufficiently transparent to ensure that it is even and fair with all taxpayers, and will not be weakened by “pardons” at the discretion of faceless officials and politicians.

An efficient tax regime would, no doubt, smoke out a fair number of sharks operating underground in the black economy. In which case, Malta’s GDP would perhaps be adjusted upwards.

On the other hand, it could even push to the wall a number of marginal enterprises and squeeze them out of existence, in which case the GDP would edge downwards to a corresponding extent..

It will weed out unfair competition nibbling at the opportunities that should rightly be available to enterprises that play according to the rules.

Above all, it will make it possible for the government to sort out its finances and, at long last, to tackle the deficit problem.

There will, no doubt, be voices arguing against a strict and upright tax regime. Some will be clamouring for concessions, arguing that enforcement will lead to rising unemployment.

Others will claim that if the government will mop up money in a stagnant economy, there will be no power to run the engine, and that the contraction of spending money will suffocate many businesses gasping for air and fighting for survival.

There will be special pleading from those constituted bodies and members of the NIMBY syndrome, whose perennial chant is “Not in my back yard”.

Rampant monster

This is a formidable array. It is strong because it has been allowed to feed on the indolence and inertia of previous years. But the monster must somehow be slain if Malta is to survive.

The government is now facing a dragon that grew in size and became ever more aggressive during its long years of office.

It cannot let it rampage voraciously any longer. The EU convergence programme beckons it to challenge the beast. But with or without the EU in mind, the scourge of tax evasion is double-edged.

Apart from the unfairness to all taxpayers who pay their due, and the market distortion arising from unfair competition by tax avoiders, there is the added – and painful – fact that, once the government fails to realise its revenue projections, it is forced to introduce new measures to make up for the difference.

If the government were smart enough to collect all revenue arrears due to it, and if it were prompt to tackle with a modicum of success the problem of tax evasion, it would not have had to resort to tax levels that border on the punitive.

It is not only the tax-paying citizens who have been decisively set back. The government is also paying a price for its inertia and lack of vision.

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