Vague tax compliance certificates are being issued to companies owing millions in unpaid taxes to public coffers, allowing them to continue to win multi-million euro public contracts while flaunting their tax obligations.

An investigation by The Shift uncovered an ingrained system of impunity, condoned by the government, despite the finance minister’s outburst last week scolding businessmen and accusing them of using the government as “some kind of overdraft facility”.

According to public procurement rules, economic operators – both companies and individuals – who have social security and income tax arrears are not allowed to bid for public tenders. The rules clearly state that prior to signing a contract for public works, the economic operator involved must present a compliance certificate stating that the company has no tax dues.

Yet the government is ignoring the problem. A case in point, already widely reported, involves Polidano Brothers, owed by Charles Polidano, known as Ic-Caqnu, who was allowed to accumulate some €40 million in due taxes while still being awarded government contracts worth millions.

The Shift is informed that there are hundreds of companies like Caqnu’s who are being allowed by the government to break the rules.

Asked by The Shift to explain how it was possible that these companies are issued a clean tax bill by the Inland Revenue Department in order to sign public contracts, outgoing chief taxman, Marvin Gearty, clearly indicated a government policy where the law is being bypassed.

“When issuing a certificate, our office does not state whether a taxpayer is compliant or not,” Commissioner Gearty explained. “The certificate simply shows the position of the taxpayer as at the date of the report being issued, meaning, whether all returns have been submitted and amounts of taxes which are due”.

€5 billion in tax arrears and counting

Tax compliance professionals who spoke to The Shift explained how “a creative way of tax compliance” is being allowed by the government to give tax offenders the opportunity to continue getting paid through government contracts.

While the scope of a tax compliance certificate in the procurement regulations was intended to block tax dodgers from winning public tenders, the way it is being issued allows defaulters to continue breaching the laws.

For example, a company that owes the government millions in tax arrears is allowed to reach a private agreement with the Inland Revenue Department to start paying its dues, in instalments, over a determined period.

When this so-called tax ‘settlement agreement’ is reached, the government issues a clear compliance tax certificate, allowing the same economic operator to carry on and sign a pending tender contract he would have won.

In many cases, the tax settlement arrangement is later not honoured by the same defaulting economic operator, but his payments due to public works are still made by the government.

In the case of a number of tax dodgers, this is happening repeatedly, each time coming to an ‘arrangement’ with the tax department on the eve of a new public procurement contract.

This system, operated by various government administrations over the years, has allowed many of today’s ‘big businesses’ to build small empires while owing tax coffers millions.

In his outburst last week, Minister Caruana admitted that the government is owned €5 billion, almost half the country’s annual GDP.

While he vowed that the government will ‘soon’ impose measures to rein in tax dodgers, tax practitioners told The Shift that most of the money owed will never reach the government coffers as “the situation has been left accumulating for too long”.

Deteriorating situation

As Malta’s public finances have been hard hit by the pandemic, on top of uncontrolled spending, unwavering corruption and abuse of public funds, the situation is getting ‘complicated’ at the finance ministry as Malta’s deficit and debt levels have reached unprecedented levels.

Since Robert Abela became prime minister, the country has increased its debt by €2.1 billion in the last 18 months, reaching a record high of more than €8 billion by the end of last year.

Despite a booming economy in the past years, inaction by the government has made the situation worse. According to the National Audit Office, “gross outstanding tax arrears more than doubled between 2016 and 2020, going from just under €3 billion to €6.3 billion”.

While the Maltese economy grew by some 35% during the past years, accumulated tax arrears skyrocketed by 75%.

Last year, the Malta Chamber of Commerce presented the government with a number of proposals to reform its public procurement rules, stating clearly that tax dodgers should be blacklisted and not be allowed to participate in public tenders.

Although the government had said it agreed with the proposals, nothing has been done and the situation remained the same.