The Government of Malta has proposed a wide-ranging bill in Parliament aimed at modernising the country’s tax enforcement framework and reinforcing efforts to combat financial crime.

The proposed legislation introduces significant amendments to key revenue laws, including the Social Security Act, the Duty on Documents and Transfers Act, the Income Tax Management Act, and the Value Added Tax Act. It also updates provisions in the Criminal Code to expand the investigative and enforcement powers of the Commissioner for Tax and Customs.

At the heart of the reform is the introduction of a harmonised out-of-court settlement mechanism that applies across all major tax laws.

This new framework would allow taxpayers to formally settle tax breaches through agreements with the Commissioner, subject to the payment of additional penalties ranging from €10,000 to €1 million.

Individuals or businesses entering into these agreements would be exempt from criminal prosecution for the offences covered, although civil liability would still apply for any amounts not included in the settlement.

Notably, this mechanism would also be available in cases where criminal proceedings have already started, provided no final judgment has yet been delivered. To ensure efficiency in handling complex cases, the statute of limitations would be suspended during the negotiation period.

The bill also introduces the legal concept of “connected breaches” – actions that are related to or carried out in furtherance of a primary fiscal offence. These could include deliberate attempts to evade tax, efforts to hide or facilitate such breaches, or steps taken to obtain the means to commit them.

However, more serious crimes such as extortion, bribery, corruption, trading in influence, and abuse of official authority are explicitly excluded from the out-of-court settlement framework. These remain prosecutable under criminal law, reflecting the Government’s intention to uphold strict standards around public integrity and serious misconduct.

To discourage misuse of the new system, the bill proposes two new criminal offences for breaching settlement agreements with government departments.

Fraudulent breaches could result in up to four years’ imprisonment or fines of up to €2.5 million, while unjustified breaches carry penalties of up to two years in prison or a €500,000 fine.

The Government has described the proposed legislation as an “important reform” and has expressed its hope for a constructive debate in Parliament, with the aim of passing the bill promptly.

The reform is seen as a key milestone in aligning Malta’s fiscal governance with international standards, while offering a more efficient and transparent enforcement model.

Image: Malta Parliament Building / Inigo Taylor