Interest rates on taxes due were almost ‘usury’ – Minister Scicluna

New changes in VAT legislation will see the interest rate on tax dues decrease from 9% per year - an average of 0.75% every month - to as low as 6%, moving away from interest rates which were almost "usury".

The new rate will however not be laid down in the Act itself "but could be revised from time to time according to the needs".

Addressing the House of Representatives, Finance Minister Edward Scicluna also insisted that the indirect taxes - expected to rise by over €46 million - were only "proposals" and no final decisions had been taken.

A document submitted by the government to the European Commission suggests that Budget 2014 may include an increase in indirect taxation. While income tax cuts will see €40 million less generated in revenues for the exchequer over three years, the government will announce €31.5 million in a series of new indirect taxes, and €15 million in new government fees where services will be offered against a fee.

According to the same document, the government told Brussels that these measures were "approved".

However, Scicluna sarcastically noted that the Opposition was "shocked" over the increase in indirect taxes.

"I'd like to remind the Opposition that Malta entered the excessive deficit procedure thanks to the financial position which we inherited from the Nationalist administration," Scicluna said.

The minister went on to add that in 2005, the increase in indirect taxes amounted to €88 million, while in 2004 it had increased by 71%.

"I could go on like this until 2011, when the increase reached €65 million. I therefore cannot understand all this sudden surprise," Scicluna said.

According to the minister, the average increase over the past 13 years was of €41 million.

On the Opposition's criticism of the €21 million cuts from this year's budget, Scicluna said such cuts "were normal yearly occurrences" which usually take place during the mid-year revisions.

Speaking on the revisions to the VAT Act, Scicluna said the department had to ensure that bona fide taxpayers who regularly paid their VAT returns are not trapped inside a system that makes it impossible for them to pay what they owe.

The minister insisted that government wanted to move towards sustainable finances and that through the "income from taxes and controlled expenditure", deficit would be controlled.

However, Tonio Fenech voiced warnings over the removal of criminal penalties and said that such deterrents should not be removed.

"We would only be risking collecting less taxes rather than more," Fenech said.

The shadow finance minister also insisted that the increase in indirect taxes, which Scicluna referred to, had been the result of "economic growth".

"What the minister is proposing are new taxes and not simply revenue from economic growth. And these new taxes were needed to sustain the current administration's expenditure," he said.

Fenech also spoke about a "contradiction" in reducing the price of petrol and diesel while there will be an increase in excise duty on the same fuel.

He added that after Scicluna had denied any cuts, he was now confirming the €21 million cut in government expenditure.

Fenech said the Labour government took "the country for a ride" when during the electoral campaign the PL had insisted that their electoral programme would be financed through cost-cutting.

"It is now clear that they want to finance their programmes through increase in taxes and government fees," he said.