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Matthew Vella
In a move towards curbing VAT evasion on so called ‘finishing’ loans, a bill passed on Monday will enforce the collection of invoices and receipts of works carried out on credit facilities from banks.
The law follows a whole year of discussions between government and banks on finishing loans – a supplementary credit issued on home loans usually used for repairs or maintenance works on a newly acquired property.
In a bid to cut down on VAT evasion, any construction, plumbing or electrical works on a property will have to be backed by VAT receipts – effectively pushing banks to issue any credit over and above the home loan against presentation of a VAT receipt.
It will also put pressure on workers in the construction and home-repairs business to start producing receipts – a reality acknowledged by PM Lawrence Gonzi last year, when commenting on the difficulty to find workers who would supply a VAT receipt for construction work on his children’s residencies.
Parliamentary Secretary for Finance Tonio Fenech yesterday addressed a conference on VAT organised by the Malta Institute of Management, announcing that the Budget Measures Implementation Act will force financial institutions to provide VAT registration numbers of third party services to the Commissioner for VAT. “We cannot tolerate a situation where taxpayers keep different sets of records for their banks and for the VAT department… the new law will also empower the Commissioner of Inland Revenue to furnish information to the Commissioner for Value Added Tax. This measure is in line with the government’s wish to use more efficiently the resources of the different tax departments.”
Fenech told Business Today yesterday the new law will eliminate a practice employed by banks to ask lenders to provide an architect’s certification of completed works, rather than receipts and invoices for completed works.
“It is justified that banks also give their contribution towards fiscal morality,” Fenech said. “Enforcement of tax legislation is always important, but perhaps even more so in the case of VAT. Abuse of the system results in a loss of revenue and is also unfair on the consumer, who is entitled to be assured that the VAT paid to the supplier is passed on to the government.”
The new law states that any credit or financial institution supplying credit by way of a loan account, in connection with the supply of goods or services by third parties for construction, repair, refurbishment or maintenance of immovable property, will have to inform the Commissioner of the names and VAT registration numbers of the suppliers and contractors, as well as of the amounts of the payments by not later than the end of the calendar quarter immediately after the calendar quarter during which such payments are made. Failure to comply with the new provisions would result in an offence carrying a fine between Lm300 and Lm1,500.
VAT revenue in Malta has increased from Lm104 million in 2000 to more than Lm174 million in 2006, an increase which Fenech said had enabled the government to introduce income tax cuts in the last budget.
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