Cyprus Mail

Millions lost: Auditor-general slams lax income tax collection

House audit committee, auditor general, Odysseas Michaelides
File photo: House audit committee

Authorities continue to be lax in collecting income tax, and as a result the state is losing millions each year, the auditor-general said in parliament on Thursday.

Odysseas Michaelides was presenting key findings of the audit office’s special report on the tax department for fiscal year 2021.

The dossier documents several cases of individuals and businesses not filing tax returns for years in a row, while at the same time a large number of corporations de-listed from the Registrar of Companies were found to be in arrears with their tax payments.

A highlight of the report concerned a person working in the public sector who had amassed €1.15 million in their bank account – an amount that in no way tallied with the individual’s salary.

The case was in fact relayed to the attorney-general’s office for investigation. Βecause the person in question happened to hold a position of authority in the public sector – specifically at the Ports Authority – he was investigated on suspicion of abuse of power.

The investigation cleared the individual. Subsequently, however, he individual agreed to pay the taxes due, plus a 10 per cent penalty.

For the whole of 2021, tax refunds came to €432 million, of which €374 million related to indirect taxes and €58 million to direct taxes.

The audit also found that many corporations declared a different turnover for VAT purposes, and a different one for income tax purposes. In a number of cases, the discrepancy between the two numbers declared as turnover went as high as 15 per cent.

The businesses would typically declare a far lower turnover number for the purposes of income tax.

In one instance, in its VAT filing for the year 2017, a company declared €20.4 million in turnover; but in its income tax filing, it declared just €4.3 million in turnover.

Another reveal that made an impression in parliament concerned a company – with assets worth around €1 billion – to whom the tax department would regularly grant generous VAT refunds. The refunds caught the attention of the auditor-general.

Michaelides said the tax file shows that the last on-site visit to the company’s premises by tax inspectors dated back to February 2014; the next on-site visit took place five years later, in 2019, and then again in 2022.

For the year 2021, the audit office was able to track €10.4 million in VAT refunded to this company. For the period 2016-2021, total refunds amounted to €52 million.

It emerged that the tax department refunded the company to the amount €386,000 for the purchase of works of art and antiquities. The items were placed in the office of the company boss.

Michaelides said the tax department’s decision to refund was wrong, as it turns out the company owner is in fact an art collector. What’s more, it transpired that some of the items in question – supposed to be displayed on the company premises – actually turned up in private residences.

Defending his department, Tax Commissioner Sotiris Markides said that wherever there is suspicion of erroneous tax refunds, inspectors will carry out follow-up checks.

Markides also complained of chronic understaffing at the tax department.

And in another instance, the audit office found that a company which obtained a VAT file back in 2008 had not paid any tax for several years – despite documentation that it was engaging in transactions during this time.

Speaking to the press after the session of the House audit committee, Akel MP Irini Charalambidou said she was “surprised” to learn that whereas the register of shell companies has been completed, there remain about 1 to 2 per cent of companies that have yet to declare their final beneficiaries.

Worse still, she said, these companies have faced no consequences for the oversight.

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