ALMOST €2 BILLION OWED IN OVERDUE TAXES

Cyprus Mail - article by Evie Andreou 21 September 2018

The audit office has called on the tax department to do all it can to collect overdue taxes – to the tune of almost €2 billion – that are increasing alarmingly, but accepted that collecting a large proportion of it is unlikely.

According to the annual audit report on the tax department that was released on Friday, €3.5 billion in taxes were collected in 2016, while overdue tax, including interest and charges, amounted to €1.8bn. Of that amount €1.3bn concerned direct tax and €485.7 million indirect tax. Overdue taxes in 2015 were €1.74bn, the report said.

“The [tax] commissioner informed us that overdue payments include millions of which the chances of collecting are virtually non-existent,” the report said.

It said that between November 2014 and December 2017, the tax department placed encumbrances on immovable property for debts totalling €197.8m and received €113.4m. Also, during the period between April 2015 and December 2017 the department withheld funds in bank accounts for taxes due worth €944,776 and received €548,368.

The tax commissioner informed the audit office that a special team has been appointed to deal with debtors, starting with those owing the largest amounts and that by the end of 2018, a major clean-up of the inland revenue department’s database is expected.

The audit service recommended that the tax department takes all necessary measures to limit the state’s non-performing debts amounting to millions of euros “and which are increasing at an alarming rate”.

It also recommends timely updating of the inland revenue department’s database concerning taxpayers who are not active.

The report said that it found problems in the department’s tax collection capacity, such as inadequate measures for the collection of overdue taxes.

There were cases where legal measures were taken (real estate freezing) that did not cover the due amount but no further measures were taken by the tax department. Also, in some cases, while the taxpayer had other assets, the department did not place encumbrance on them.

On some occasions, court cases were filed against taxpayers which were later withdrawn.

The report also said that companies that are under liquidation appear on the records of the tax department under overdue taxes. This, it said, might not paint the real picture.

But delay in probes could also mean lost chances of uncovering possible offences. One of the cases mentioned by the report is that of a now retired state doctor for whom the audit office had asked for a tax probe in 2016. This only took place a full year later as more important cases were prioritised by the tax department.

The audit service said it did not agree with the tax commissioner who argued that delays in such investigations can only be a problem under certain conditions which were not applicable in that case.

“Our office does not agree with this position since the identification of undeclared income by a civil servant (especially a doctor) points to a possible case of corruption (brown envelopes),” the report said.

According to the report the most important sources of loss of tax income due to undeclared income were from people renting out property, businesses offering Ministry of Transport (MOT) tests, but also artists, businesses and individuals offering fitness and wellness services, and spa, beauty and hair salons.

As regards MOT shops, following random checks of 16 establishments, the total amount of turnover which was declared for VAT taxation but not to the inland revenue department, was for the period between 2002 to 2015, approximately €11.1m.

Of this amount, approximately € 10.3m concerns the period between 2006 and 2015, a period for which the tax commissioner may impose tax according to the law, the report said.

Random checks in 20 fitness centres, the report said, revealed that the overall turnover not declared to the tax department, but which was declared for VAT reasons, was around €24.4m for the period between 1995 and 2015. It added that the tax commissioner could impose taxation on €20.1m of that amount concerning the period between 2005 and 2015.

There have also been 14 cases of top-flight football referees and assistant referees who did not declare income between 2007 and 2014 even though they appear to have each refereed between 84 and 171 matches in Cyprus and abroad. It is believed that they each earned on average €16,800 per year for the period between 2013 and 2014. The report said that the referees may have refereed more matches as the probe concerned only top-flight games in Cyprus and abroad. But even when referees stop refereeing matches, and continue to work as observers, they still fail to declare their income from that activity.

As regards football clubs, the report said that most of them appear to have failed in responding to their obligations for a number of years, even after the approval by cabinet between 1998 and 2014 of a number of schemes to help them repay their debts.

Until January 2017, football clubs owed €34.15m both in direct and indirect tax.

The report said that the football club companies also owed €11.99m in direct and indirect tax.