Tax evasion is an illegal activity in which a person or entity deliberately avoids paying tax liability. It involves fabricating or disguising revenue, falsifying deductions without supporting documentation, and failing to declare cash transactions. Tax evasion is a serious crime that carries harsh punishments and may lead to criminal prosecution.
The fact that taxes are a significant source of government revenue makes advocating for them difficult because most people find it challenging to imagine parting with a portion of their income. This money is used to fund various development initiatives aimed at enhancing the business environment. However, tax avoidance has become a major issue for the nation, with individuals finding ways to avoid paying their taxes.
A few years back, around 2021, the biggest expose was made by the world's largest journalism partnership called the 'Pandora Papers.' Essentially, the 'Pandora Papers' are leaked documents of many high-profile individuals. The expose revealed that some prominent names from Nepal were also implicated in the Pandora Papers, which exposed 16 different offshore trades of Nepal dealing with tax havens worldwide, including major entities like Shree Airlines, Chaudhary Groups, Golchha Organization, and others.
The Pandora Papers serve as an example of how Nepali businesses evade taxes. Research data from 2021/22 claimed that 138 cases have been filed against 431 individuals in the Patan High Court for evading Rs. 24.72 billion. The department has filed cases against many firms involved in producing bogus VAT bills and selling them for a commission. Several firms that purchased these bills have also faced charges. Bhat-Bhateni, the largest supermarket chain in Nepal, has been accused multiple times of issuing fake VAT bills. In fiscal years 2010 and 2011, Bhat-Bhateni evaded Rs. 38 million through the falsification of bills for transactions in items it never imported.
These are just paper records of billions of frauds committed by certain individuals. In Nepal, there are estimated to be more than 923,000 registered businesses. Considering their capital structure, if businesses paid the minimum tax liability, it could result in significant revenue for the government. However, businesses choose to evade taxes, raising the question of why they do so.
Understanding taxes and the system is always a complex and common problem for every business organization. Tax codes can be intricate and challenging to navigate. Some businesses exploit loopholes or take advantage of ambiguities in tax laws to minimize their tax liabilities. The complexity of the tax system also creates opportunities for fraudulent activities. Additionally, businesses aim to maximize profits. Thus, not paying taxes can significantly impact a company's profitability. By evading taxes, businesses aim to reduce expenses and retain more of their profits. In developing countries like ours, where corruption is prevalent, transparency has always been a significant question. Businesses may collude with corrupt officials or engage in under-the-table transactions to avoid taxes.
In conclusion, the government is losing a substantial amount of revenue due to tax evasion. It is imperative to emphasize that tax evasion is unlawful and has serious repercussions, including monetary fines, reputational harm, legal action, and a decline in public trust. To prevent tax evasion and promote equitable taxation, most nations have strict legislation and enforcement practices in place.
(Authored by Ishan Shrestha)