Developers call out suspicious tax arrears ‘ruse’ that has raised industry’s hackles

The Malta Developers Association (MDA) has disassociated itself from new taxation rules that will allow defaulting taxpayers to not pay any tax due on the transfer of property purchased before March 2021, against their arrears.

The new measure would allow such defaulters to be exempt from tax on property transfers to the extent that they are in arrears.

The measure was dubbed an unfair practice by the Chamber of Commerce. “Like every other scheme intended to bring taxpayers in order, this scheme benefits only the defaulters, and does not consider those who have their tax payments in order.”

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In a statement, Malta’s constrution lobby – under public scrutiny as the possible benefitter of the rules – said the measure was discriminatory.

“The MDA agrees that government should find a way to collect tax arrears from defaulting tax-payers but there are various ways how this can be done without creating an unlevel playing field,” MDA director-general Deborah Schembri said.

Schembri said the measure would lead to unfair competition, with anyone benefitting from such incentive being in a position to offer the property at a better price to that of the developer. “MDA encourages government to consult the Association before issuing such measures as what are meant to be incentives for some, directly and negatively impact the industry.”

MDA added that the measure is also discriminatory against people who are not owners of immovable property, and insisted that this is not an amnesty for developers. “This is because developers pay their final withholding tax with every contract signed and therefore, as developers who pay their tax at source they will not be benefitting from such incentive,” Schembri concluded.

The rules were slammed by the Chamber of Commerce as discriminatory, while both the Malta Institute of Taxation and the Institute of Financial Services Practitioners called them “undesirable and untenable”.

The financial services body said the rules came at a time when Malta’s greylisting had highlighted Malta’s lack of rigour in takign action against defaulting taxpayers.

“It’s beyond our comprehension,” the MIT-IFSP said. “Since Malta was grey-listed earlier this year, both the Malta Institute of Taxation and the Institute of Financial Services Practitioners have been actively participating in and contributing to national efforts to procure Malta’s removal from the greylist. In the opinion of the institutes, the publication of the rules is not helpful in this regard.”

They complained of lack of prior consultation, with the tax measure having no underlying rationale or justification.

“The Malta Institute of Taxation and the Institute of Financial Services Practitioners invite the authorities to reconsider their implicit endorsement of unlawful behaviour of this nature and to repeal the Rules with immediate effect.”

The Chamber says that the legal notice suggests that tax defaulters that do not have the money to settle their dues promptly, can only do so by liquidating their property. “This legal notice indicates that government believes that tax monies have been used to purchase property... If we do not want to see any more of this cavalier behaviour in the future, we should make sure that people are not able to purchase additional property before they settle their tax arrears.”

The Chamber said that only then, should an exemption from tax on property transfers be allowed until 31 December 2022, and be effective in curbing old habits.

“Those who default on tax payments to finance speculative activities may also end up delaying settlement of trade credit indefinitely, to the detriment of businesses that supply them.

“Such practices are extremely damaging and need to be discouraged. It would be good to see schemes designed to help businesses recover their dues from defaulting unrelated parties who are heavily invested in property.”