From experience, more often than note, taxpayers with substantial amounts of unsettled tax, social security contributions and VAT are frequently faced with cash liquidity problems and any additional tax, omission tax and interest incurred, resulting in the ballooning of the sums of pure tax in question, in no way help them come forward and clear what is due to the Revenue Departments.

To this effect, in recent years, both the Inland Revenue Department (the IRD) as well as the VAT Department felt the need to announce remission schemes, which schemes have always been very welcome, with the scope of encouraging taxpayers to put an end to their dues either by way of a lump sum or by entering into an instalment plan spread over a number of months through which the taxpayers would benefit from a percentage reduction in additional tax, omission tax and interest; and this according to the terms of payment they choose when signing the agreement with the Departments.

Towards the end of last year a Legal Notice and a Bill were published, both having the frame of mind of alleviating burdens on taxpayers by reason of any significant interest sums incurred and with more of a long-term objective in this regard.

The Income Tax Management Act, chapter 372 of the laws of Malta (the ITMA), states that for years of assessment 1999 onwards a 1% interest rate per month shall be charged on any unpaid tax from the tax settlement date up until the moment when the tax is paid. A 0.75% interest rate per month applies for periods commencing on or after the 1st January 2009.

By virtue of Legal Notice 361 of 2013 the remission of interest rules (the Rules) came into force giving the powers to the Commissioner for Revenue to, at his discretion - which discretion cannot be questioned, remit wholly or in part any interest chargeable. In order for such interest to be remitted, the Commissioner has to be satisfied that the tax due was not paid within the prescribed period due to a reasonable cause.

Conditions may be imposed by the Commissioner through the requiring of the person concerned to not make a default or omission in a specific established period or asking for the payment of tax in such amount and within a determined time frame. An infringement of same would result in the forfeiting of any remission of interest granted.

The Rules also make provision for situations in which payment plans not exceeding 2 years are entered into, even with the assistance of firms such as ours, between the tax payer and the IRD and it is provided that interest shall cease to be incurred from the date when a person enters into such payment plan.

With respect to VAT, a Bill intended to put forth an Act to amend the Value Added Tax Act, chapter 406 of the laws of Malta (the VAT Act), aims to bring about the implementation of measures to review downwards the interest applicable on unpaid VAT payments.

Under the VAT Act, persons having an Article 10 registration are to pay the Commissioner the sum of indirect tax, being the excess of the output tax over any deductions he has a right to make, by not later than the date on which the indirect tax becomes payable for a specific tax period. Failing to do so would result in interest at the rate of 0.75% being due for each month on any such tax up until the moment of its payment.

Following said Bill, earlier on this month specifically on the 7th February 2014, Legal Notice 52 of 2014 was published making the interest applicable that of 0.54% with effect from 1st January 2014.

It is expected for the upcoming integration of the Revenue Departments to not only continue strengthening efforts in order to bring about the reduction of the current amount of revenue arrears but to also create uniformity in both the direct and indirect tax scenarios, something which is currently arguably lacking, and simultaneously further ease the burden for taxpayers who may have fallen behind to comply when it comes to their tax affairs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.