Administrative vs criminal action in taxation : an in-depth analysis

Abstract

PURPOSE: Paying tax revenue on any income is obliged by law, as any person making use of the country’s resources owes a return to the country, though, many people still end up bypassing the taxing net. This leaves a negative impact on society as taxation is a primary source of government income, and thus, lower income from tax revenue results in lower government expenditure, which ultimately slows down the economy. Reinforcing the tax administration in Malta is within the responsibility of the Commissioner for Revenue. The CfR aims at collecting all tax revenue due to the government fairly and efficiently. The jurisdictional rules on Malta’s right to tax determine the amount of tax to be collected by the Maltese government. Malta’s Income Tax law treats tax evasion as a criminal offense in Malta. Persons charged for evading tax are liable to imprisonment, over and above the infliction of various administrative fines. This all depends on the type and gravity of the offence where the imprisonment period does not exceed six months. The Moneyval report fails to agree with the before mentioned statement and thus, analysis, for this reason, will be made. DESIGN: The researcher is expected to collect both primary and secondary data. Secondary data will be collected from readings and will be applied to the literature review. On the other hand, for primary data, a qualitative approach will be taken, where semi-structured interviews with professionals, managers, accountants, and lawyers will be carried out. Providing that the participants occupy positions within the industry and have contributed to similar research before, they are expected to have full knowledge of the area of study. FINDINGS: The findings of this research study outlines the discrepancy between tax collection and tax evasion penalties, and that focus should be placed on the tax collection inefficiencies to ultimately revise the tax penalties. The IRD should work on improving its internal procedures to reap tax compliance benefits in the long term. For criminal tax penalties, the number of investigations and enforcement measures should be improved before imposing harsh measures. CONCLUSIONS: It was concluded that the majority of taxpayers fail to comply with the IRD for to various reasons, including the lack of trust of the public funds, the lack of knowledge and education of taxpayers, the lack of resources within the IRD, and others. VALUE: This research contributes to a better understanding of the administrative and criminal fines currently imposed by the tax authority. This analysis can be helpful for both taxpayers and CfR personnel to potentially consider the causes for noncompliance on both ends of the coin. Lastly, recommendations are highlighted to enhance Malta’s penalty system.