News | Wednesday, 20 May 2009

Hundreds expected to appeal after VAT interest court ruling

Karl Stagno-Navarra

The VAT Department is bracing itself to receiving hundreds of appeals on contested bills after a recent court ruling forbade government to charge a blown up 12 per cent interest on amounts contested before a Board of Appeal.
Sources at the VAT Department indicated that it is unlikely for the Finance Ministry to appeal Justice Caruana Demajo’s ruling given that the court “left little room for manoeuvring on the issue.”
“The court’s ruling was fair and just,” said a senior tax consultant who spoke to Business Today, adding that the practice of imposing high interest rates throughout the whole process of appeal was tantamount to “legalised usury.”
A commercial legal advisor commented that the ruling has given a breath of fresh air to many self-employed who are feeling the noose around their necks by the VAT Department, and can now freely contest their outstanding bills without having to face total ruin by the time the Board of Appeal hears their case. “I know of at least two businessmen who have taken their own lives due to the unfairness of the system,” the legal advisor said, adding that many have had a €40,000 VAT bill boosted to €60,000 or more due to high interest by the time the Board of Appeal heard their case.
Many professionals in the financial sector too expressed satisfaction at the ruling, because according to them, “even government is being given the opportunity to put good governance into practice.”
A spokesman for the Institute of Accountants explained that this landmark ruling is giving the government an opportunity to be fair and have more control over potential abuses within the Department, hinting at the fact that the current police investigations into alleged fraud within the VAT Department is “intrinsically connected” to the issue.
Whilst insisting that who is fraudulent in his returns should be punished, the Institute of Accountants was always adamant on the point that government must be “proportionate” when considering penalties.
So far government is still waiting for the Attorney General’s reactions to the ruling delivered by Justice Caruana Demajo, however, many businessmen are reported to have already contacted their legal advisors to put forward their appeals and seek a fair hearing without being pressured into accepting the bill to avoid the high interest rates.
But Finance Ministry officials are also reported to be compiling a detailed assessment about the implications should government not appeal the ruling.
According to one senior ministry official, the accumulative financial implications for government “could be even greater than the car registration issue.”
Judge Giannino Caruana Demajo delivered the judgement last week following a constitutional application filed by Clayton Communications Company Limited against the Prime Minister, the Attorney General, the Commissioner of VAT and the VAT Appeals Board.
Clayton Communications Co Limited pleaded that it had a dispute with the Commissioner of VAT and had lodged an appeal that was pending before the Appeals Board, but interest was still being charged on the outstanding amount in dispute while the case was still pending.
The company complained that the imposition of an interest rate of one per cent per month on unpaid tax was intimidatory and was counter to the principle of equality of arms during a dispute, while it had the effect of discouraging an individual from appealing before the VAT Appeals Board.
Judge Caruana Demajo ruled that Clayton Communications Co Limited was not contesting the imposition of interest, but the fact that interest was running due to the lapse of time until the Appeal Board appointed its appeal for hearing was unjust.
Consequently, the company was being charged interest due to unjustified delays on the part of the same Appeals Board and not through a delay on the company’s part.
The court ruled in favour of Clayton Communications Co Limited after noting that the interest rate was much higher than that normally charged on debts of a private nature, and therefore the interest rate was of a punitive nature.
The ruling went further to note that the State, which included the Appeals Board, “could benefit from the failure to act on the part of the Board.”
In conclusion, it ruled that there was a violation of the company’s right to access a court.
Judge Caruana Demajo ordered that the rate of interest which the company was bound to pay could not exceed the normal legal limit established by the general laws of the country.
Many accountants considered the interest charge during appeals, as “intimidatory”.



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20 May 2009

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