“Thanks to the action against fake VAT evaders and its deeper psychological impact, collections of VAT exceeded the targets by 34 percent over the first four months of 2011/12,” said Rajan Khanal, director general of IRD.[break]
Till December 2010, before IRD scooped down on fake VAT receipt racketeers, IRD was complaining of shortfall in VAT collection by Rs 700 million than the target. But after it launched a sweeping action, it recorded a sound growth in collection, leading to 22 percent growth in VAT collection in 2010/11 compared to a year ago.
“And this growth trend has picked up once we intensified actions against the tax evaders,” said Finance Secretary Krishna Hari Baskota, referring to collection over the first fourth months of 2011/12.
According to the Ministry of Finance, VAT collection grew by 32 percent in the first month (mid-July to mid-August) of 2010/11 and continued to grow by 39 percent, 31 percent and 32 percent in the second, third and fourth months respectively.
“This is a very healthy growth. If the trend continued, which we are committed to maintain, VAT collections will easily exceed the target of Rs 72.74 billion set for the year,” said another IRD official, attributing the situation to action launched by the department against fake VAT receipt users.
Data shows, VAT collection, which was enforced in 1997, had been continuously on the rise and recorded growth of as much as 32 percent in 2008/09. However, its growth rate had suddenly retarded to 26 percent in 2009/10 and 22 percent in 2010/11.
Although officials then attributed the retarded growth to low economic growth rate and under invoicing, IRD in December 2010 dug out anomalies that showed widespread use of fake VAT bills and well-planned scam run by business firms of all scale.
Through its investigation, IRD traced 518 firms involved in fake VAT receipt rackets and estimated the scam of running over Rs 10 billion (over $135 million). Further investigations even confirmed that 365 firms evaded VAT running into a billion of rupees. The department has slapped Rs 3.45 billion in tax and fine on those firms.
IRD had found that these firms had either bought VAT receipts of smaller firms or counterfeited VAT receipts to create fake transactions, thereby inflating costs and reducing their tax liability. Worse still, seven firms acting on the basis of the fake VAT receipts and customs documents had even claimed VAT refund of Rs 116.06 million without contributing a penny into the national treasury.
Officials like Baskota admit that such a huge use of fake VAT receipts has roots at under-invoicing practiced by importers at customs. “It is one evil we are trying to address through regular revision of customs evaluation,” said Baskota.
IRD also said it is also consistently working to promote issue of invoices at the retail level, another major cause behind VAT evasion. In a bid to raise awareness among general public, the IRD is even organizing ´Tax Week´ from Thursday.
“The campaign fundamentally focuses on encouraging aspirant businessmen to start businesses by formally registering with the tax office, convincing firms to run their businesses transparently and promoting the habit of taking VAT receipts among consumers,” said Laxman Aryal, deputy director general of IRD.
IRD is holding various programs throughout the next week and hopes that it will bolster its tax enforcement drive and also expand the tax base.
Currently, there are only about 450,000 registered tax payers in the country and officials admit it is pretty unsatisfactory figure.
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