 08 -14 November 2000 |
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Opinion Revising the tax system Finance Minister John Dalli speaks on reforms in the Inland Revenue Department over recent years, enforcing the existing provisions of the Income Tax Act and employer awareness over tax issues at a forum organised by the Malta Institute of Taxation |
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Revising the tax system
Finance Minister John Dalli speaks on reforms in the Inland Revenue Department over recent years, enforcing the existing provisions of the Income Tax Act and employer awareness over tax issues at a forum organised by the Malta Institute of Taxation It is my intention today to concentrate on the reform changes that have been taking place over the last years at the Inland Revenue Department. The department besides being responsible for the administration, enforcement and collection of income tax, since 1998, it is also accountable for the enforcement and collection of the social security contributions. This year revenue from these two major sources accounts for more than 45% of Government's ordinary revenue for a total of over Lm 300 million. Considering these factors we need to assure the success of our reforms for our own benefit, for the benefit of our families, for the benefit of all our population so that we could reap the fruits from the results achieved for a better and healthier standard of living and for the furtherance of progress of our country. The performance of this department is discussed, scrutinised and monitored continuously by Government, politicians, the constituted bodies and by the public in general. It needs to be well organised and has to achieve high standards in work quality and services offered to the taxpaying public. A concerted effort should be made by all concerned to arrive at our goals. Much more still needs to be done but I am pleased to state that things are improving and we are in the right direction. When in 1994 we initiated the reforms to our income tax systems, we adopted a strategy based on the overall objectives of introducing a tax system that will streamline the tax procedures, eliminate complexities, collect the right amount of tax in the right time, and that it will guarantee a continuous flow of revenue to Government. We also needed to enhance the public perception towards the Inland Revenue Department by providing feedback to taxpayers within reasonable timeframes. During the last 18 months we have implemented a number of important changes that have contributed to significantly higher compliance rates by taxpayers of their fiscal obligations, and to the early and timely processing by the department of the annual returns and other procedures. I am referring to the introduction of the self-assessment system, to the new Provisional Tax rules and to the concurrent re-engineering of the organisational structure and procedures within the department. The results achieved so far are known by all. The business processes attached to these new initiatives are being sustained by the application of new robust IT systems that are being developed in collaboration with MITTS. In less than 15 months the department has been able to process around 400,000 self-assessed returns and simple tax declarations for the years of assessment 1999 and 2000, and inform taxpayers of their tax position which may have resulted in either a request for payment of the outstanding tax liability or in the payment by the department of any overpaid tax. Prior to these changes this process used to take about 3 or more years to complete with much more staff involved. Before being able to reach this stage we had to take other measures during the previous years so as to simplify our procedures in preparation for the introduction of the self-assessment system. We introduced the final withholding tax systems on investment income in 1994 and on part-time work in 1996. Also in 1996 the traditional and archaic personal deductions were replaced by corresponding adjustments to the tax rates. In 1998 the PAYE system was superseded by the Final Settlement System; the tax deduction calculation under the FSS is simple, accurate and in the vast majority of cases arrives at the correct amount of the tax liability from employment income. This made it possible for the introduction of the simple declaration for pensioners and employees. One of the topics being dealt with during this seminar deals with the operating aspect of the Final Settlement System. As one would expect from such systems, employers have an important role to play; they have their legal obligations and responsibilities towards both the department and their employees alike. Great attention was given at the time of implementing the FSS not to increase the workload of employers unnecessarily; infact certain processes had been streamlined with the specific purpose of exempting employers from itemising all earnings and deductions for each employee on a monthly basis. This relieved employers from filing complicated monthly returns as previously required under the PAYE system; this in itself was a substantial reduction in workload to the employer. The majority of employers are aware of their obligations and comply fully with the requirements of the system. Also in this sector we noticed a marked improvement in the compliance rate for the filing of the FSS returns and the reimbursement of tax and social security contributions to the department. In today's world it is imperative that businesses invest more heavily in information technology. Computerised payroll systems make employers more efficient and easier to comply with their legal obligations. For businesses to be efficient and well organised serves not only to enable them to comply with the requirements of the law but also for their own benefit as it affects the way they conduct their business and increases their competitiveness both in the local and international markets. We have now arrived at a stage of enforcing the existing provisions of the Income Tax Act in relation to the taxation of benefits in kind, or more commonly known as fringe benefits. The collection of the tax due on these benefits is being incorporated under the Final Settlement System. The department is finalising the guidelines that will determine the valuation criteria of the various types of benefits paid by employers. These regulations will come into effect next year. Tax practitioners, accountants and auditors should bring this to the attention of their clients to ensure that they comply fully with the requirements of the law. An education campaign will be launched at the appropriate time. Definitely there is still much to be done; there are the unresolved issues relating to the backlog of assessments and objections under the old system. New initiatives are being taken to phase out gradually, and in the least possible time, these outstanding matters. The department will be investing further in information technology to enhance its quality control systems. In the not too distant future it will also be developing its own interactive website on the internet for the benefit of the taxpaying public and the tax practitioners alike; much of its services will then be offered electronically on line through the website or by email for more efficiency and better customer service. | |||||||
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