The government has increased the VAT exemptions threshold from €14,000 to €20,000, with companies or persons who earn less than this limit being free from having to pay VAT.
Finance Minister Edward Scicluna said the measure was aimed at small-scale earners, such as retired people who worked a few hours a week, or a housewife who held a part-time job.
“When you force such small-time earners to enter the VAT machine meant for bigger businesses, this might cause them some panic,” he said.
Scicluna highlighted how anybody making use of the scheme - which is voluntary - would still be contributing VAT to the government, since they would still be paying such tax on their inputs, for instance, when they buy the tools necessary for their trade.
There are currently around 15,600 people who are eligible for exemption because they earn less than the €14,000 limit, with an additional 900 who will fall under the €20,000 threshold.
Anybody wanting to benefit from the measure would have to apply for it on a yearly basis, declaring that they earn less than €20,000.
Asked whether the measure could lead to tax evasion by way of people only declaring their income up to a level which falls below the threshold, and not declaring the rest so as not to pay VAT on it, Scicluna said it would be up to the tax compliance unit to detect any cases of abuse.
“If there is a person who opens their shop every day, all year, and has many customers, it wouldn’t be credible that they don't earn more than €20,000. VAT inspectors would notice this and follow it up with the business concerned,” Scicluna said.
“However when you have borderline cases - people who are really part-timers, occasional workers, and so on… these are paying VAT on all their inputs and cannot ask for a refund from the government [if they are making use of the exemptions],” he said, “So the government doesn’t run the risk of these people making some large claim.”