Tax Commissioner Joseph Caruana argues that changing the mindset of taxpayers to understand their tax obligations is not enough. “Transformation is key and this means changing the way the tax and customs administration operates and interacts with taxpayers to meet their expectations.”
Transformation has been the key word in my first few months as commissioner.
We started by consolidating our major revenue departments into one organization, the Malta Tax and Customs Authority. For the first time, we launched a three-year strategic plan to invest in the latest technology and talent to transform our government into a functional design organization to become an employer of choice.
Joseph Caruana, Commissioner of TaxationTraditional methods are no longer sufficient, as taxation and customs operations are no longer static functions of government. Digitalisation, along with effective enforcement and management, is key to transforming the way tax revenue is administered, collected and managed. This transformation is supported by the European Commission and the International Monetary Fund, as well as local actors, including specialized agencies. More than €1 million in EU funding has been secured through a technical assistance program to modernize our business processes.
We are approaching a year of formal integration between revenue authorities. What has your experience been so far?
Several duplicate processes were eliminated and synergies and efficiencies were improved, including the integration of shared resources such as human resources, finance, administration, technology, legal, and international affairs. Synergies are also being achieved with respect to risk analysis in the area of tax reporting (declaration), as available expertise and information regarding taxes and customs duties is utilized. Our risk management department now has better analytical capabilities, and data from a variety of sources gives us better insight into taxpayer behavior, trends, compliance risks, and more Informed decisions can now be made and policies can be formulated.
These efforts resulted in tax arrears of over €375 million in 2023.
The introduction of a unified negotiation process for the recovery of arrears will provide taxpayers with a comprehensive overview of their VAT, income tax and FSS liability. This emphasizes customer-centric service by facilitating consistent repayment plans, enhancing cash flow management, and enabling quick settlement in one meeting.
Can we win the battle over “uncollected taxes”?
The concept of “large uncollectible taxes” is a misleading legacy dating back decades, but combating uncollected taxes, VAT gaps and other forms of non-compliance remains difficult. That said, compliance rates have improved significantly over the past two years thanks to new policies, various enforcement actions, and increased taxpayer outreach. These initiatives resulted in tax arrears of over €375 million in 2023.
Could you tell us more about your thoughts on compliance by design?
This concept requires system redesign to reduce human intervention in tax compliance obligations, minimize human error, and ensure better outcomes for taxpayers. We believe that data-driven procedures will not only reduce bureaucratic costs for taxpayers, but will also enable sharing of data with other regulators, making Malta a more attractive and competitive jurisdiction. I believe it will be helpful.
Our strategy is in line with the Malta Financial Services Advisory Council’s 10-year strategy, which covers 80% of the strategy on ‘Taxation’.
Part of this strategy includes incorporating compliance requirements into the design and operation of our processes and procedures, which not only facilitate electronic payments but also more effectively track transactions and cases of non-compliance. It will be possible to do so.
As a result, the number of taxpayers filing their returns online increased by 12 percent last year, and 53 percent of individual taxpayers now make payments online.
Compliance has increased from 60% to 90% when it comes to filing returns by individual taxpayers, while returns by corporate taxpayers have improved by 15%.
How is MTCA’s approach to revenue collection changing in light of increased remote work and digital service-based revenue generation?
This challenge is being faced and addressed by jurisdictions and international tax forums around the world. As a result, automatic information exchange is also being extended to the platform economy and crypto assets from a direct tax perspective. The European Commission’s proposal ‘Value Added Tax in the Digital Age’ (VIDA) would ensure that digital platforms operating in short-term accommodation and passenger transport collect and pay value added tax on the transactions they facilitate. It also proposes new reporting obligations for
We are also working with the EU Commission to investigate the introduction and impact of real-time reporting, which allows companies to report transactions to tax authorities in real time or near real time. Immediate electronic transmission of data related to invoices, sales, and purchases to tax authorities not only enhances tax compliance and reduces fraud, but also improves efficiency and provides timely and accurate transaction information. The system will be built.
Given the increased reliance on digital platforms, how is technology helping to streamline tax processes and improve efficiency?
Last year, we invested €3 million in a project for artificial intelligence software with a strong risk management component. It is a data analysis tool powered by machine learning that helps Tax and Customs authorities analyze and report using a risk-based approach. This tool includes everything from technical, registration, payment declaration, inspection, verification and auditing. Although his two-year project is still in its first phase, it has shown promising results in terms of efficiency and effectiveness in resource utilization. Our main objective is to encourage taxpayer compliance and strengthen enforcement capacity.
We also want to replace our current standalone legacy system with a proven integrated tax and customs system (ITCAS). The international tender for ITCAS procurement was announced last week. This compliance-by-design system includes a comprehensive business process restructuring process to meet the needs of various taxpayers. His €68 million project reflects the commitment of the Ministry of Finance and Employment and the Government to invest in more efficient and effective regulatory functions.