The concept of fraud under the income tax acts : a Maltese perspective

Abstract

Purpose: Tax evasion in Malta is quite significant. A means to tax evasion is fraud. Consequently, the research objectives of this study revolve around an analysis of the concept of fraud in Malta from the legal and tax practitioners' perspective. Design: In order to attain the objectives of this study, a qualitative approach was used. Primarily, the Income Tax Acts were studied to determine what constitutes fraud for income tax purposes. Secondly, due to the fact that the concept is left open to interpretation, selected case law which emerged up to December 2012 was analysed. Finally, to obtain an insight into the perception of tax practitioners, semi-structured interviews were performed with twelve participants. Findings: Maltese case law with respect to fraud is limited. This may either indicate that fraud is not a frequent occurrence or else that the Inland Revenue Department is unequipped with the necessary resources to detect it. Consequently, the concept has just started to emerge through recent case law. Nonetheless, tax practitioners believe that the understanding of such a concept in Maltese society is not widespread and a lot of misconceptions exist. It also emerged that further tax guidance will not help in this area as this may induce further non-compliance. Furthermore, it emerged that the penalties system for fraud is unfair. Conclusions: The concept of fraud remains open to interpretation. However, the Courts' decisions should be used in this regard. Moreover, instead of guidance, it would be better if taxpayers are educated on tax issues to increase tax morality. In addition, there is a need to modify the penalties system to increase its fairness. Implications There is a strong need for education amongst taxpayers to encourage tax compliance. Furthermore, the Inland Revenue Department must become stricter in its fight against fraud and increase tax audits. Lastly, a new system of penalties should be designed.