MTCA: a transformational change

Commissioner for Tax and Customs Joseph Caruana is under no illusions about the importance of transforming the Malta Tax and Customs Administration: the changes would tackle an impressive 80% of the objectives outlined for financial services in the strategy launched in March 2023 by the Malta Financial Services Advisory Council.

However, he is adamant that the transformation goes well beyond the financial services sector and that the Administration’s Strategic Plan for 2023-2025 will affect all taxpayers.

“What we are doing now will bring the Administration in line with OECD standards – the Tax Administration Forum 3.0 – which involves a new approach: moving from ‘voluntary compliance’ to which is ‘compliance by design’,” he explained.

One of the main rationales for the changes come from the integration of the main Revenue Departments into the Malta Tax and Customs Administration. It has been a long time coming: the merger has been on the cards since 2012, when legislation was enacted which amalgamated the positions of the Commissioner for Inland Revenue and the Commissioner for VAT. These two departments were merged and now Customs is being brought in. This created the impetus for an entire review, with projects covering a wide range, from the governance structure to the technology backbone, and from collection and compliance to the accumulation of defunct files.

Governance is an important thread running through the transformation: “We have already amended the law and will have a Board of Governors, which separates policy from operations. And the Commissioner for Tax and Customs has full independence in the administration of taxpayers,” he said.

“We will have an audit committee that will be chaired by a member of the Board and are also working on compliance management. We have a risk management committee, designed with the support of the International Monetary Fund, which helped us to establish the terms of reference. We are in the initial stages but the intention is for risk management to encompass the four pillars: registration, filing, verification and collection.”

The organisation also needed to be restructured to reflect the merger, which added 420 customs employees to the 412 tax ones. The director generals now form an executive committee while the Administration has also issued a number of calls to fill new or vacant headship positions.

Mr Caruana is full of praise for the work that has already been done over the past years: one metric stands out. In 2006, the notion of non-filers was introduced, representing a huge evolution. It was a breakthrough wherein at present more than 300,000 of the 380,000 taxpayers no longer need to file a return. These returns are being populated by third party information – all part of the ‘compliance by design’ approach – without taxpayers needing to stress about their returns.

“This is obviously very beneficial for taxpayers while, internally, assessors were able to shift their emphasis to those who do not self-assess,” he said.

On deadline date for the submission of Income Tax Returns, the number of individual taxpayers who submitted their income tax return increased from 73% to 89%. The customer-centric approach has also enabled a 13% increase in the number of taxpayers who file their returns online and 53% individual taxpayers are now making their payments online.

“We need to continue investing as we are still working with different legacy systems which do not talk to each other. We have very capable and experienced officers but they need the right technological tools,” he said. “This will be one of the key factors of the holistic transformation.”

The Administration has issued a tender for an integrated IT system for both tax and customs, but it is already using emerging technology such as AI which will start to give results in the coming weeks.

Picture: Joseph Caruana, Commissioner for Tax and Customs 

“Rather than taking decisions based on historic information, we will be able to proactively analyse our data in real time – based on risk criteria that will be built into the system. We will be able to do profiling to understand behaviour and ensure compliance. From day one, the emphasis has been on better compliance so that there is not the need for enforcement,” he stressed.

“We can scan the taxpayer database in just a few minutes – as opposed to the current four or five weeks!”

The systems will be using evidence-based decision-making, which will help the MTCA to be more pro-active, objective and unbiased.

The approach is not only based on new metrics: he has also been pushing for current performance indicators to be improved, with some significant results. For example, in the past two years, compliance by individual taxpayers improved from 60% to 89%. The situation with regard to corporate taxpayers has also improved by 15% but he is under no illusions: there is more work to do.

The National Audit Office reported that the Office of the Commissioner for Revenue had gross collectable arrears of €6,186,738,924 in 2021, but Mr Caruana is adamant this misleading amount needs to be tackled once and for all ­– no matter how difficult this may be.

“For example, there are so many defunct companies (such as shipping companies) – that are not operating. And part of this €6 billion is also based on estimates rather than real amounts due. This year we identified the issues and next year we will look at each and every file. We are doing this with the help of the relevant professional bodies such as the Malta Institute of Accountants, the Malta Institute of Taxation and the Institute of Financial Service Practitioners.

“I have presented a document to the Finance Ministry which shows that a considerable amount can be taken off the €6 billion total. It has been emphasised that this is something that needs to be done! We are blamed for not collecting money that either is not actually due or which cannot be collected. Let’s start…” he said.

He is also determined to improve collection through compliance, pointing out that sorting out just 40 companies would tackle 80% of the total amount due.

So much for systems: there is also another aspect to the merger: Mr Caruana is also planning to have a centralised location which would bring everyone under one roof. The public consultation on the site identified has just closed and he is looking forward to being able to also get this aspect of the project off the ground, no pun intended.

The Administration is not only dealing with internal changes. Operations are currently covered by three separate laws which will be harmonised. A working group of practitioners and professionals is analysing what is required, covering everything from the appeals process to human rights. The first draft should be ready next year, with enactment scheduled for 2025.

“We could never get this done unless we had full support politically and administratively. After all, 90% of government revenue comes from MTCA,” he pointed out.

The impact on the financial services sector will also be significant. The Authority has 51 projects which will address 80% of the MFSAC Strategy, and most of these were already outlined in its own Strategic Plan.

“The only areas of the MFSAC Strategy that we are not covering are those which are not clearly within our responsibility as they are related to policy which is the ministry remit – although we can contribute,” he said.

“We are on the right track. I am very proud of the values we have adopted, including respect – internally and externally. I hope that the changes will bring motivation and make the Administration an attractive place to have a career.”