Officials at IRD told myrepublica.com that Neoteric Nepal and Paramount Electronics, which are official distributors of Nokia mobile handsets and subsidiaries of Nepal´s two major business houses, Golchha House and Bishal Group, respectively, and Nepal Himal Equipments, the authorized service center for Nokia mobile sets, have been found engaged in unlawful activities aimed at evading taxes worth Rs 49 million. [break]
The department has decided to slap a total fine of Rs 21 million plus Rs 1.7 million of interests to the three companies, making a total government´s claim to Rs 71.7 million.
Of the three companies charged with evading taxes, Paramount Electronics has been asked to pay Rs 33.6 million while Neoteric Nepal and Nepal Himal Equipments, the only official service center for Nokia sets in Nepal, will have to pay Rs 24.5 million and Rs 13.6 million, respectively.
What are the charges?
Nearly four months long investigation carried out by the IRD claimed that both the distributors were involved in activities aimed at evading taxes. As per the law of the land, mobile importers get 60 percent refund of VAT that they pay at customs while importing mobile phone sets after submitting proofs of their sales.
However, RID´s investigation has alleged that the two distributors took VAT refunds of not only those phones that were sold to customers but also of those sets that were returned to them by customers after they were broken down within the warranty period of one year.
"Instead of replacing the broken phones by new ones, both the companies were found engaged in showing the new phone as new sales and getting their VAT refunded.
Similarly, the IRD investigation also found that both the distributors were not properly maintaining accounts of their promotional costs, including the financial supports they get from the Nokia for that purpose. “They were found planning to evade taxes by dividing such transactions in two different fiscal years," said an official at IRD.
Likewise, IRD has also alleged that the distributors were found buying various items used for promotional campaigns from the suppliers who had issued fake PAN numbers or have not submitted details of transactions. As per the law it is the duty of the buyers to check whether the receipts issued by sellers are genuine, said IRD officials.
What the distributors say
Both the distributors dismissed the allegations and said that they are the only distributors of Nokia-made phones and Nokia itself has assigned a different company to handle repairs and replacement activities in Nepal.
"When we sell mobile sets we claim VAT refund as per the law. However, if mobile sets are broken-down within the warranty period, they are repaired for free and replaced by a new one if damage is beyond repair," the distributors said.
While replacing the broken mobile phones, the service center asks one of the distributors to send it similar phones. Since the service center is a separate entity operated by the Nokia itself, they issue sale bills in the name of the service center and the service center gets paid by the Nokia.
There is nothing wrong in issuing new bills and getting VAT refund as there were sales to a separate company, they argue.
Sanjay Golchha, managing director of Neoteric Nepal refuted the charges and said they have done nothing wrong.
"We believe we have done nothing that can be seen as an act of deceiving taxes and we believe it is a result of misunderstanding in interpreting accounting standards mainly due to the lack of clear tax policy in settling replacements made within warranty period," he said.
Golchha further said that Neoteric has lodged its logic against the allegations at the DIR and expressed hopes that IRD will seriously consider their logic while taking final decisions.
Both the distributors also claimed that they have shown both the incomes they had received from Nokia and expenditures that they incurred in promotional activities.
About the accusation that distributors were not dealings with the vendors that have not fulfilled tax obligations, the distributors said that it is simply not possible to check authenticity of documents provided by the vendors.
"For marketing and promotions, our company works with several vendors. However, we are not sure of the authenticity of such vendors regarding tax compliance. If the government can provide an easy access system to check such authenticity, then it will be easier for both the government as well as importers," said Vishal Agrawal, managing director of Paramount Electronics.
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