Ministry of Finance Reforming Procedures To Combat Tax Evasion

Ministry of Finance Reforming Procedures To Combat Tax Evasion

09 June 2022

Tax enforcement pressure has been seen in Malta, with the Ministry of Finance reforming present procedures in order to combat tax evasion.

Tax enforcement is the most difficult task for any tax authority, and it must be dealt with efficiently and effectively. Globally, tax organisations have been facing greater pressure to carry out more rigorous checks to combat tax evasion and non-compliance.

What are tax audits?

Tax audits are comprehensive checks carried out on chosen tax paying individuals and include:

• Evasion
• VAT avoidance
• Income Tax
• Customs Duties
• Social Security misuse (where applicable)

Tax audits range from routine check-ups to thorough investigations. Due to the more intricate nature of certain cases, audits passed on to the Tax Compliance Unit often need a high level of competence in auditing, accounting, and the relevant tax legislation. The results and suggested assessments of said tax audits are then referred to the respective authorities, including the Commissioner of VAT, the Commissioner of Inland Revenue, the Controller of Customs, or the Director of Social Security.

Why are they carried out?

Tax audits are carried out to lessen the possibility of tax evasion. Since it is impossible to totally eradicate tax evasion, keeping it under control is of utmost importance, as increased evasion can jeopardize the tax system.

What you need to know

Tax audits can take anywhere between a few months to a number of years to complete. The duration depends on the case’s intricacy. Any person or company is subject to investigation and if an investigation is called, they will be notified through a letter by the Tax Compliance Unit.

Investigations may be called for no later than five years from the end of the fiscal year in which the tax return or additional return for that year is submitted, or six years for VAT investigations. As from June 2022, income tax and VAT interest due is set to increase annually to 7.2%.

Should an individual omit or partially omit entries, the above-mentioned five-year period is no longer applicable. Those found to be evading tax may be charged with payment of tax on omitted revenue as well as possible interest and administrative fees. A reduction of fees can be applied for under professional guidance, but this is subject to the judgement of tax authorities.

Tax audits allow the company to validate their current accomplishments as well as identify areas of improvement, laying the groundwork for the company’s future direction. It is recommended that businesses carry out tax audits on a regular basis to ensure compliance, resolve problems and increase credibility. At AE, we have a team of specialized tax auditors who swiftly respond to client needs. Our knowledge spans the entire spectrum, from personal to corporate tax, covering both direct and indirect taxation. Reach out on contact@ae.com.mt for more information.