Finance Ministry sets up special task force to look into restaurant tax avoidance

Finance Minister Edward Scicluna said that he is ‘fully aware’ of the tax avoidance and human resources abuse that is threatening the restaurant industry, which is why he has appointed a special task force to investigate the matter.

An interview with restaurateur Julian Sammut published last Sunday exposed in which tax avoidance and employment permit abuse is harming the restaurant industry.

Speaking to The Malta Independent on Sunday, the Finance Minister said that while there will always be scope for abuse, the first solution should be to make permits and tax-related documentation less bureaucratic.

“When things are so complex and bureaucratic, it’s obvious that restaurant owners or staff try to bypass the system. You would expect this to happen. I don’t want it, of course, but we have to set up ways to tackle it.

“As Minister for Finance, I have set up a joint enforcement task force together with the Inland Revenue Department, VAT and Customs. We have to start from the point at which workers come into Malta and go into each and every employment sector. A report will eventually be handed to me and provide me with the necessary information.”

Asked whether he intends to make such a report public, the Minister said that he will be divulging the information if there is any news worth announcing.

“This is a continuous struggle. Abuse can be limited, but never eliminated. What we need to do is address the black economy and treat it as a beast on its own. It creates unfair competition and loss of revenue,” he told this newspaper.

Also contacted, Malta Hotels and Restaurants Association President Tony Zahra said that the association is willing to take a proactive approach to tackle the issue of human resources abuse. He said the problem is present not only in the restaurant industry, but also in accommodation and other economic sectors.

“We met with the government and have agreed that the way forward is to make the process more user-friendly. We need a system where an employer applies for third country nationals for work and can get an immediate reply. But I must admit, government is reacting in a timely fashion and positively.”

He said that, some years ago, employers were worried because they wanted more business. Now, the problem is finding people who can do the job. “Big success brings about such problems,” he added.

Regarding VAT and tax avoidance, Zahra said that the government must enforce the message that the rules are there to be obeyed by all. “It is not fair to have the black market functioning in parallel with the regulated economy,” he said, referring to the accommodation sector.

When leading restaurateur Julian Sammut spoke to this newspaper, he mentioned how growing competition, increasing rents, a severe lack of entry-level staff and the personal greed of many operators are forcing many in the business to either abuse the system or lose money and face failure.

Sammut said he believes tax avoidance and the abuse of human resources are threatening not only the restaurant industry but the tourism sector as a whole, as quality in the industry suffers.

“We know that we, and other fiscally compliant companies who play by the rules, hear of cases first-hand of restaurants with turnovers similar to ours declaring half their sales, meaning that they pay half the VAT due and, as a consequence of declaring lower sales, declare a minimal profit, so pay far less tax than they should.

“I reckon that this practise is widespread. For some outlets, it is a planned, well-administered system, and for others it is a matter of survival. Not playing on a level field is most frustrating and demotivates bona fide restaurateurs.”

What is already a difficult situation is being compounded, he says, by some operators paying wages under the table. He explained: “In recent months, it seems as though this monster is raising its head once more. I’d say that at least half the people we interview expect to have a good part of their wage paid under the table, something that we at Kitchen Concepts cannot do, even if we wanted to. But for an operator who is taking in black money by cheating on VAT payments, it is a great way to launder, and get rid of, that money.”