More than €2 billion in taxes are owed to the state, of which €668 million is at risk of never being received, the Audit Office said in a report released Tuesday.
In the special report, covering the period up to the end of 2021, the Audit Office said the Tax Department needs to “up its game” in terms of tax collection efficiency.
The auditor flagged a series of shortcomings at the department – including failure to adequately follow up on old tax arrears or on persons who slip under the radar as they do not have a tax file, or to cross-reference data with other government computer systems.
As at the end of December 2021, total tax receivables (tax arrears) came to €2.170 billion – of which €1.727 billion related to direct taxes and €443 million to indirect taxes.
Of the €1.727 billion, the Audit Office said 38.7 per cent of that (€668 million) were considered ‘arrears at risk’ – meaning at risk of never being collected.
The Tax Department is urged to make use of all the tools at its disposal to rein in tax arrears.
According to the Audit Office, several reasons account for the accumulation of receivables – failure by individuals or corporations to declare their income for a number of years, and the Tax Commissioner’s non-imposition of taxes based on his discretional powers.
Other issues included delays in examining and imposing taxes, and weaknesses in tracking undeclared income and/or identifying new taxable persons.
The auditor-general’s office was able to track around 13,000 cases of tax appeals. Combined, this concerned an amount of €334 million – which the Tax Department itself said it considers non-receivable until the appeals process is completed.
Moreover, the report found that a number of individuals, while paying social insurance contributions on taxable income did not in fact have a tax file. The Tax Department is advised to investigate all such cases and, where necessary, impose taxes.
In addition, the report mentioned ‘under the table’ transactions by corporations.
Another problem is that the Tax Department lacks a mechanism to cross-reference data in its own computer systems with the Treasury’s Integrated Financial Management System (FIMAS). As a result, the Tax Department “is unable to verify the completeness and accuracy of its collections.”
The Audit Office also spotted contributions in arrears to the national health scheme (Gesy).
And it found that a large number of corporations de-listed from the Registrar of Companies owed a combined €211 million – another amount considered to be ‘at risk’.
Of the taxes that were collected in 2021, 83 per cent related to income tax (€1.98 billion), 0.23 per cent to immovable property tax (€5.42 million), 4.59 per cent to capital gains tax (€109 million), 11.39 per cent to the special defence contribution (€270 million), and 0.23 per cent to ‘other taxes’ (€5.42 million).