IRD slaps Rs 1.35b in tax, fines on 20 firms

KATHMANDU, March 16: In a major move, the Inland Revenue Department (IRD) has slapped Rs 1.35 billion in tax and fines on 20 firms involved in a fake VAT bill racket, not just evading tax but even claiming refund from the government for VAT that was never paid.

"The first phase of our investigation was completed last week," said Rajan Khanal, director general of IRD, adding that the department has already turned over the completed case files to the tax offices concerned.

Khanal refused to elaborate. However, sources told Republica that DRI unearthed at the 20 firms fake bills showing transactions worth Rs 2 billion. "They have been slapped tax and fines of Rs 1.35 billion," said a source.


Alarmingly, 16 of the firms evading tax belong to the top business houses of the country, said officials. They refused to disclose names, citing ´protection of taxpayers rights´, as provisioned in the Income Tax Act.

Nonetheless, sources said the biggest revenue amount cheated by a business house was Rs 650 million. The second biggest, perpetrated by another group, was calculated at Rs 190 million.

The 16 firms had used fake VAT bills to shield local transactions, thereby evading VAT liability. They had also used the bills to inflate their expenses, thereby squeezing down income tax liability.

On the other hand, the four other firms that have together been slapped tax and fines of Rs 440 million had used fake VAT bills (of procurement) and customs documents (for exports) to get VAT refund, whereas the transactions had never actually taken place.

In all the cases, only VAT bills had exchanged hands, without any movement of goods.

"And because there was no trace of the suppliers, the so-called four exporting firms were planning to siphon away millions of rupees from the national treasury by claiming refunds without having paid a single penny in revenue," said the source.

Officials said they are close to completing investigations of 10 other firms involved in the same racket. So far, the department has unearthed Rs 1.50 billion worth of additional fake VAT bills from them and built up a tax liability of over Rs 800 million.

"We anticipate the liability to go up further by the time we complete the assessments," the source stated.

IRD had first sensed the fake VAT bill racket -- known the world over as ´the case of missing traders´ -- a year ago when it found VAT bills with future dates of transaction while raiding a mobile phone dealer at Putalisadak.

But it launched an extensive investigation only after it nabbed some 200 bundles of fake bills from Saraswoti Stationery at Babarmahal in December 2010. This had made it clear that businesses were buying genuine VAT bills of smaller firms or printing bills of some other registered traders to create fake transactions with a view to evade tax and even siphon off money from the national treasury.

Since then, IRD cracked down on 32 major firms involved in wrongdoing. They include 2 industrial firms, 8 auto dealers, 3 construction companies, 4 construction materials dealers, 3 electronics dealers, a department store, a vendor of locally manufactured goods, a housing company and the authorized distributor for a multinational company.

It also found seven different cases of export firms claiming VAT refund on the basis of fake VAT bills. Inland revenue offices also launched investigations in 10 separate cases of fake VAT racketeering at local level.

Tax officials were shocked to find investigations of one party dragging in others, in a never ending chain.

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