When the taxman flouts his own laws

17 officials at the Ministry of Finance have submitted “unverifiable” taxable fringe benefit declarations on the use of their fully expensed cars, while another four have been found to have an incorrect calculation on their taxable fringe benefits.

The detail emerges from the Auditor General’s report of public accounts for 2009, and lambastes governmental ministries and departments for “shortcomings that increase the risk of officers enjoying the use of fully expensed cars… in breach of the taxable fringe benefits regulations.”

A total 205 persons are entitled to fully expensed cars by government, which includes all permanent secretaries, 32 director-generals and 126 directors, and some 36 officers and consultants.

The taxable fringe benefits are regulated by a 2001 legal notice and a finance ministry circular that clearly states that “public officers provided with a car at government expense and who make use of this car outside normal working hours, will be subject to the payment of income tax on this fringe benefit.”

A subsequent ministry directive was issued in 2006 strengthening government’s compliance with the fringe benefit regime: for tax purposes, fully expensed cars are considered as ‘payments in kind’, such that the beneficiary is taxed for this benefit.

Tax on fringe benefits should be withheld at source, in accordance with the Final Settlement System Rules (FSS).

But shortcomings identified by the NAO in his investigation that covered all the 205 fully expensed cars in use by senior governmental officials, reveal “unverifiable, undisclosed or conflicting information” and that fringe benefit tax was “not always being deducted in accordance with fringe benefit rules.”

The NAO also found erroneously calculated values on the cars, to the extent that some declared a purchase value much less than the original, leading the officers to benefit from a lower fringe benefit calculation, or worse, 19 officers “had their taxable fringe benefit erroneously calculated in their favour.”

Besides the finance ministry, unverifiable fringe benefit data was identified in 24 cases at the Ministry for Resources and Rural Affairs, six at the Office of the Prime Minister, five at the Ministry for Gozo, seven at the Education Ministry and 10 at the Ministry for Home Affairs. There were also 10 cases of incorrect calculation of taxable fringe benefit the foreign ministry.

The NAO said only four out of 17 fully-expensed cars were covered with approval of financial policy regulation. “This practice may hamper government’s initiative to control this type of expenditure,” the NAO remarked.

Fuel allowance limits were also exceeded in 20 cases. Internal approval to exceed the allowable fuel limit was only sought and obtained in four instances.

The Auditor General also found a total of €101,428 in repairs where no distinction was made between repairs and maintenance costs.

The finance ministry regulates the procurement of cars with a maximum retail price and even maximum engine capacity, and demands that proper accounting records are kept to clearly distinguish maintenance costs and repair costs.

Officers have a maximum fuel consumption of either 175 or 150 litres every month, depending on their designation.

But a lack of information on purchase prices, retail prices and engine capacity in some 100 cars made it impossible for the NAO to ascertain whether the relative cars were purchased or leased according to the rules.

Even retail price limits were exceeded in 10 cars, one of which overshot the limit by €15,793.