Government acknowledges €6.7 billion in uncollected tax dues unlikely to reach state coffers

New figures tabled in Parliament by the Finance Minister show that as at the end of 2024, Malta had accumulated over €8.1 billion in tax arrears.

Minister Clyde Caruana admitted that more than €6.7 billion of this is now considered unlikely to ever reach state coffers –  an amount that various administrations failed to collect.

In a reply to PN MP Ivan Bartolo, the finance minister said only €1.44 billion is expected to be recoverable.

The problem is most acute in VAT, where nearly €5.44 billion, around 89% of total VAT arrears, is deemed uncollectable.

Income tax arrears are less severe but still significant, with roughly 63% unlikely to be recovered.

Tax experts told The Shift that while irrecoverable arrears do not represent a direct loss of cash, they highlight a structural weakness in Malta’s tax system, as billions in expected revenue have failed to materialise.

Compared to the rest of the EU, Malta’s position stands out sharply.

In most EU member states, tax authorities distinguish between collectable and non-collectable arrears, but the share deemed irrecoverable is typically far lower.

Studies by the European Commission suggest that in many EU countries, between 20% and 40% of arrears are classified as doubtful or uncollectable, a fraction of Malta’s estimated 80% or more.

Similarly, VAT performance indicators such as the “VAT gap”, which measures lost revenue, tend to be significantly lower across the EU.

While Malta’s VAT gap has historically been moderate, the scale of uncollectable arrears suggests deeper issues in enforcement and long-term debt management.

Experts told The Shift that the implications of all these outstanding billions are significant.

Lower effective revenue limits the government’s fiscal capacity, increasing reliance on borrowing or compliant taxpayers. It also raises concerns about fairness, as large volumes of tax go uncollected, risking the undermining of trust and voluntary compliance.

As the finance minister openly admitted that he has almost given up on collecting more than €6 billion, he has presided over Malta’s largest debt dependence, which is expected to surpass the €12 billion mark this year.