The Ministry of Finance has requested the multilateral development partner to identify all possible anomalies indulged in by tax evaders and suggest policy reforms to fight the menace.
World Bank has responded to the call promptly with positive note. “We expect the study to begin soon," said Finance Secretary Rameshore Prasad Khanal.[break]
The government approached the WB for support after investigations by IRD found nationwide prevalence of VAT receipt forgery racket. Entrepreneurs were found either buying genuine VAT receipts from smaller firms or buying printed receipts of some other registered traders to create fake transactions in order to evade tax.
Worse was; on the basis of fake VAT receipts and customs documents, some of them had even claimed VAT refund, siphoning funds from the national treasury without contributing a penny in it.
So far, IRD has already tracked around 500 firms involved in the racket, whose tax evasion is estimated to stand well around Rs 10 billion (well over US$ 138 million). In them, the department estimates the country could have suffered revenue losses of over Rs 4 billion.
"We found a few major anomalies. There might be others as well, which we might not know about. By identifying all possible wrong practices we plan to develop prompt corrective measures for long term improvement of the system," said Khanal.
Besides, MoF believes identification of anomalies and offering of suggestions by an independent body will also help the ministry get a fairer input compared to IRD´s own recommendations.
VAT evadors to face forgery charges
The government on Thursday also made it clear that the fake VAT receipt racketeers that claimed VAT refund on the basis of forged receipts and customs documents will face forgery charges apart from tax evasion charges and fines.
"Such actions (of fake VAT receipt users) are not just cases of tax evasion, but serious financial crime," said Khanal.
"They will not be able to walk free by just by paying taxes and fines. They will be tried for ´forgery´ as well," he said. If convicted by court, those involved in such cases will land in jail.
The Inland Revenue Department (IRD) that scooped down on 32 firms has dug out seven such cases in which traders on the basis of fake receipts and customs documents claimed that they exported noodles, vegetable ghee and other consumables to China and sought VAT refund, even while not paying even a single penny in VAT.
Of them, IRD has already completed investigations into four firms that claimed exports through Tatopani. IRD said the firms are guilty of tax evasion and has slapped them tax and fines worth a total of Rs 440 million.
It is close to completing investigation into three similar cases wherein firms claimed VAT refund claiming exports to China via Rasuwagadhi. Investigation so far shows they too are guilty of forgery and tax evasion worth Rs 460 million.
"Because they forged government documents, IRD will hand over their cases to the Department of Revenue Investigation (DRI) for legal action," said Khanal.
He even admitted that the wrongdoers were encouraged into the crime with support from government officials. "Some customs officials involved in such activities are already in detention. Others are being tracked as well. They too will face action," said Khanal.
As for the other 25 cases in which businessmen used fake receipts to shield their transactions for VAT evasion and inflate expenses for squeezing income tax liability, the government will take actions against them as per the existing tax laws.
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