The equity of penalties in the Maltese fiscal system : an analysis

Abstract

Purpose: The aim of this dissertation, as implied in its title, is to ascertain whether the Maltese tax penalty regime is equitable. The main focus will be the penalties found in the Income Tax Acts. Design: In fulfilling the dissertation’s objectives, legislative and empirical research have been undertaken. The former consists of the analysis of the main legislations inscribing tax penalties, while the latter constitutes a qualitative approach made up of semistructured interviews with the main players involved in the tax penalty regime. A thorough analysis into the literature underpinning the function of such penalties, what makes a good regime and how the Maltese regime is beheld, as well as a comparison with other countries, is carried out. Findings: The study illustrates that, at first glance the regime is deemed to be relatively fair, and is comparable to that of other countries. Nonetheless, findings also exhibit that despite the efforts being made, the system as a whole drives income tax penalties away from fulfilling their function, that is deterrence, and from the principles underlying a good regime. Thus, more efforts should be made at improving the system holistically, aimed at re-thinking the objective of such penalties, as well as increasing simplification, proportionality, education, efficiency and effectiveness. Conclusions: The dissertation concludes that although efforts are being made at improving the system, nevertheless, based on the definition of equity, an equitable income tax penalty regime is still far off. Value: Tax, which directly or indirectly impacts on all citizens, is a vital mechanism sustaining the country’s economy. This is further enhanced through the application of a tax penalty regime encouraging compliance, and assuring Government a constant stream of income. This dissertation recommends measures which will enable the evolution of a more equitable and effective income tax penalty regime which will make both the life of taxpayers and the work of tax administration easier.