The Audit Office’s report uncovers a staggering €2.5 billion in unpaid taxes, with doubts on recovering €1.1 billion. Tax collection inefficiencies, unenforced property encumbrances, unresolved appeals, and structural flaws contribute to this significant problem, highlighting the need for better oversight and corporate compliance.
What is the extent of the unpaid taxes problem described in the Audit Office’s report?
A report by the Audit Office reveals a €2.5 billion unpaid taxes issue, with doubts about recovering €1.1 billion. Tax collection inefficiencies, unenforced property encumbrances, and unresolved appeals over €683 million in taxes contribute to this problem. Structural flaws, poor oversight, and corporate compliance issues exacerbate the situation.
Sweeping Underperformance in Tax Collection
A staggering €2.5 billion in unpaid taxes pose a significant challenge for the state, with doubts on the recoverability of approximately €1.1 billion of this amount. This alarming situation is detailed in the Audit Office’s special report focusing on the fiscal activities of the Tax Department for the year 2022. The report underscores a series of deficiencies within the department, highlighting a lack of enforcement in using the tools at its disposal to compel defaulters to settle their dues. Among these tools is the ability to place encumbrances on immovable property, which is often not utilized to its full potential.
Taxation issues extend further, with an overload of 14,500 cases under appeal, amounting to €683 million in contentious taxes. These figures remain in limbo, neither being claimed nor acknowledged as receivable revenue until the appeals are resolved. Moreover, a concerning level of inefficiency is revealed in the department’s handling of income tax return filing. Both individuals and corporations have managed to evade filing returns over successive years, with little repercussion. The department also falls short in tracking and addressing those who report partial or no income, aggravating the loss of tax revenue.
Structural Flaws and Compliance Issues
Problems within the Tax Department extend into the realm of corporate taxation. Authorities have been taxing companies that have consistently reported losses due to the devaluation of investments in subsidiaries, without conducting due diligence. Additionally, there is inadequate monitoring of companies that record tax losses for multiple years, which are then transferred within the same group of affiliates, potentially as a tax strategy.
In an alarming disclosure, the report mentions an opinion issued by the department regarding a certain company that apparently contravened existing laws. This opinion overlooked restrictions on the interest payable on loans for purchasing shares in subsidiaries that were not completely owned. This lack of oversight is compounded by the department’s disregard for the concerns of in-house auditors regarding the accuracy of companies’ revenue reports. This is exemplified by the case of an audit firm that inserted disclaimers from 2013 to 2020 on a company’s financial statements, which the tax department subsequently ignored when assessing taxes owed.
In a questionable decision, the department even allowed a tax-deductible status for €1.1 billion related to defaulting debtors, further complicating the fiscal landscape.
VAT Rebates and Corporate Discrepancies
The auditor-general’s report does not stop at direct taxation. It also flags irregularities in handling VAT, wherein rebates or offsets are granted without actual on-site verification. Tax inspectors, it seems, rarely visit company premises despite the necessity for such actions to ensure accurate VAT filings.
An astonishing revelation came to light showing a mismatch between the number of companies registered with the Registrar of Companies and those on the tax department’s database for direct taxation. A check in August 2020 uncovered that 25,528 companies were missing from the tax records. Sample checks between March 2018 and March 2019 also exposed several restaurants and entertainment venues failing to file income returns or the mandatory ‘Employer’s Return of Employees’.
The dossier suggests inadequate government oversight, with the cabinet itself coming into question for awarding a no-bid contract for construction projects at the tax department’s own offices. The auditor-general recommends the revocation of such decisions and proposes redirecting such projects to the Department of Public Works to ensure transparency and legality.
What is the extent of the unpaid taxes problem described in the Audit Office’s report?
A report by the Audit Office reveals a €2.5 billion unpaid taxes issue, with doubts about recovering €1.1 billion. Tax collection inefficiencies, unenforced property encumbrances, and unresolved appeals over €683 million in taxes contribute to this problem. Structural flaws, poor oversight, and corporate compliance issues exacerbate the situation.
What are some of the challenges faced in tax collection according to the report?
The report highlights underperformance in tax collection, with a significant amount of €2.5 billion in unpaid taxes. Issues such as unenforced property encumbrances, unresolved appeals, and inefficiencies in income tax return filing contribute to the challenges faced by the Tax Department. Furthermore, there is a lack of enforcement in using available tools to compel defaulters to settle their dues.
What structural flaws and compliance issues were identified in the report?
The report points out structural flaws within the Tax Department, including inadequate monitoring of corporate taxation, instances of tax deductions for defaulting debtors, and discrepancies in revenue reports. Compliance issues were also highlighted, such as the department overlooking existing laws and disregarding concerns raised by auditors regarding the accuracy of companies’ financial statements.
What discrepancies were found in handling VAT and corporate registrations?
The auditor-general’s report uncovered irregularities in VAT handling, with rebates or offsets granted without proper verification. There was also a mismatch between the number of companies registered with the Registrar of Companies and those on the tax department’s database. Additionally, sample checks revealed that some companies, as well as restaurants and entertainment venues, were not filing income returns as required.
