The Commissioner of Inland Revenue in Malta is empowered by law to charge interest at the rate of 100% if a person fails to pay within 330 days. This seems to be perfectly in order as nobody has yet lifted a finger to protest about this maximum rate of interest. But if this is the case, does this apply to the Commissioner of Inland Revenue only or it is perfectly lawful nowadays to charge 100% interest? And if so, has usury now become legally permissible?
I do not blame the man in the street whose mind boggles on how the CIR can charge 100% interest while others cannot; and if they do, they can be charged by the police on accusations of usury.
I am not saying that the CIR is acting in breach of the law: what I am questioning is why the CIR is allowed by law to charge 100% interest when this is causing a lot of hardship to the people.
What happens is that if you buy property and are honest with the CIR, declaring the full amount on the contract, (few people know that not declaring the full amount on the contract amounts to laundering of dirty money), and the architect appointed by the CIR dictates that the value is much higher, you are being left with no option but to accept that valuation.
This is because although you have the right of appeal, compound interest continues to run from the day that the CIR issued the bill until your appeal is decided, and not from the date of the decision of the appeal.
And the interest charged by the CIR is no joke: 10% within 90 days from the date of the assessment; 20% within 120 days, 30% within 150 days; 40% within 180 days; 50% within 210 days; 60% within 240 days; 70% within 270 days; 80% within 300 days; 90% within 330 days and 100% within 330 days. So obviously, you are left with no option but to negotiate a deal with the CIR.
You may say this is fair enough; but if you have set your mind at rest because you were honest with the CIR and declared the full amount, and you later discover that you have this additional bill to pay, you can negotiate an agreement on the payment terms but you must also know that the interest continues to run at the same rate stated above until the final settlement. So in the long run it is better to take a loan from the bank than to pay the amount due by monthly installments.
In the case of tax arrears, the CIR charges 1% per cent per month, which is also high but not as exorbitant as 100% as in the case of Capital Transfer Duty. I see no reason why two sections from the same departments should have different rates and neither do I see why there is no distinction between property bought by property speculators and property bought by first, second or third time buyers.
This is causing the man in the street unnecessary hardship because he is faced with a take-it-or-leave it situation, as interests continue to accrue if an appeal is lodged until the outcome of such appeal and the last payment.
It is also unfair how the tax due on the property by the seller and the buyer, for income tax purposes, is due by them jointly. This means that if the seller does not pay his dues, the CIR has the right to ask the buyer to pay for what is due by the seller and vice versa. Unfortunately, I know of no notary that brings this to the attention of the buyer and the seller in the contract, and let us be honest: even so, one cannot take the necessary precautions because nobody knows how the architect appointed by the CIR is going to value the property.
It is therefore a situation where the risk is on the parties to the sale. And the risk is even greater when one of the parties is a foreigner. I know of cases where the buyer was a foreigner and by the time the CIR issued the assessment, the buyer re-sold the property and left Malta so that the seller is now bound to pay twice the duty. It is not fair for the CIR to allow re-sale of the property when the assessment on the first sale has not been concluded.
In this day and age, where computers are the order of the day, the CIR can very easily detect whether the assessment of that particular property has been concluded, and it can, with the stroke of a pen, issue a legal notice stating that re-sale of any property still subject to an assessment, can only be done under certain conditions. The quicker the CIR acts on this issue the better.
I personally do not agree that such assessments be made after the sale of contract. I prefer them to be made before the sale, because this way many problems can be mitigated and neither the seller nor the buyer can find himself with an additional bill to pay, or with having to pay the bill twice because the other party to the contract has left Malta. This is not a question of manpower: when it is a case of tax collection, efficiency must prevail above any budgetary measures.
I know that the European Union does not allow us to place any limit on interest rates but I am sure that the EU will not allow anybody to charge 100% interest. I do not know what the Malta Financial Services Authority has done about the matter or whether it intends to do anything about it.
It may not be amiss for the MFSA to set our mind at rest that charging 100% interest for failing to pay within 330 days is perfectly legal.