Govt investigating 2000 firms for their alleged involvement in Rs 10 billion fake invoice scam

Published On: February 25, 2024 06:00 PM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Feb 25: The government has launched an investigation into about 2,000 commercial firms engaged in various businesses for allegedly using fake invoices, aiming to evade revenue. It is estimated that these firms evaded revenue worth around Rs 10 billion by using fake invoices and receipts.

According to the Inland Revenue Department (IRD), an investigation is being conducted into the fake invoices of Rs 9.93 billion of 1,986 taxpayers based on the data obtained from previous investigations related to tax evasion using fake invoices. The IRD reports that about Rs 1 billion in taxes has been identified through the investigation of fake bills until mid-February.

After it was found that fake VAT bills were being used in the supply of goods, public construction businesses, goods provided in government offices, the IRD initiated the investigation. Revenue evasion occurs through the issuance of bills without actual transactions, manipulation of documents for the prices of goods purchase and sale, forgery of value added tax (VAT) bills and PAN bills.

Director General of IRD, Bhupal Baral, said that they are investigating both old and new files based on suspicious transactions using fake VAT bills.

“We aim to complete the investigation by mid-April,” he stated, “Due to some previous bills, difficulties are arising in the investigation.”

Baral, who assumed the role of Director General of the IRD in the third week of January, mentioned that 45 offices under the IRD are investigating suspicious transactions within their scope of work.

Dirgharaj Mainali, the previous DG, stated that the investigation was started as there was a significant problem of tax evasion.

“The government has incurred a lot of revenue losses due to the use of fake VAT bills,” Mainali said, “The investigation aims to bring those who use fake bills into the legal sphere to control revenue leakage.”

The IRD conducted a complete tax audit of 1,402 taxpayers and detailed investigations of 185 taxpayers, determining taxes worth Rs 8.13 billion and Rs 795.7 million, respectively, through its subordinate offices. 

The Supreme Court (SC) has already pronounced the firms concerned guilty in transactions involving fake VAT bills. The Supermarket Bhatbhateni, accused of using fake VAT bills, must pay more than Rs 1.5 billion to the government after the SC’s verdict. Bhatbhateni had approached the Supreme Court against the tax determined by the IRD.

The Value Added Tax (VAT) is one of the major revenue sources, and fraudulent activities, such as creating fake bills to evade VAT, have caused huge losses to the government.

The non-payment of VAT collected from the public is considered a serious financial offense, and legal provisions are in place to claim VAT amounts based on bills. The revenue is being evaded through the creation and sale of fake VAT bills without actual purchase of the goods.

The government is actively monitoring areas where revenue collection falls short of targets and has committed to expanding research based tax-audits.

The Ministry of Finance has focused on tightening controls on revenue leakage, and implemented recommendations provided by the high-level recommendation committee on tax system reform. It is said that emphasis will be placed not only on fake VAT bills, but also on the collection of unpaid revenue and arrears.

In order to control the trend of non-compliance with the tax laws, the IRD is preparing to make the system more effective by regularly monitoring and imposing strict legal provisions on those violating the law. 

Stakeholders stated that it is necessary to identify potential areas of revenue leakage and closely monitor those areas and that inter-agency coordination is necessary to control revenue leakage. 

DG  Baral stated that bringing revenue leakage into the legal sphere will increase revenue collection. “We will establish strict legal provisions by identifying the areas of revenue leakage,” he said.

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