An evaluation of VAT as an efficient budgetary tool : the Maltese experience

Abstract

The scope of this dissertation is to make an evaluation of Value Added Tax (VAT) as an efficient budgetary tool, with a particular emphasis on the Maltese experience. This dissertation examines the flexibility of VAT to change the tax burden and contains an analysis of the revenue collected from VAT during the past years. It deals with evasion and avoidance of VAT, since they both affect the efficiency of such tax and contains suggestions to reduce them. I will try to conclude whether in the light of the large public deficit, the Maltese Government should shift the tax balance further from direct to indirect taxation. Finally, an analysis is made of the current and the proposed VAT directives of the European Union (EU), and how these would affect the VAT law, if Malta were to become a member state. This dissertation is structured in the following way: Chapter One contains a historical overview of taxation in Malta and examines the importance of taxation as a source of government revenue. Chapter Two analyses the characteristics of the "Ideal Tax System" and examines the advantages and disadvantages of VAT, with reference to direct taxes and other indirect taxes. Chapter Three focuses on tax evasion and compares the enforcement provisions of the VAT Act 1994, the CET Act 1997 and the VAT Act 1998. Chapter Four deals with VAT avoidance and planning and with measures taken by the VAT Department to reduce VAT avoidance. Chapter Five analyses the revenue raised from VAT and compares it to the revenue raised from CET. Chapter Six summarises the mam conclusions and contains various recommendations. Finally, an analysis is made of how the VAT directives of the EU would affect the VAT law if Malta were to become a member state.