Tax office laxity costs govt millions in loss revenue, says OAG report
KAHMANDU, MAY 07 -
The tax administration’s failure to make proper assessment of taxpayers’ liabilities has resulted in a huge loss of revenue to the government, the Office of Auditor General (OAG) has said in its annual report.
The 49th annual report of the OAG shows a number of such instances where the government had been cheated in revenue. The Income Tax Act (section-5) has made provision about the deduction of expenses, such as interest liabilities, cost of trading in stocks, repair and improvement costs, pollution control costs, depreciation allowance and losses from business and investment.
The report has blamed tax office’s failure to make proper assessment of such reduction of expenses from tax liabilities for such losses.
Inland Revenue Department Director General Tankamani Sharma said that the most of tax evasion, with taxpayers deducting their expenses, were caused due to human errors and inefficiency of tax office instead of the tax system. “We need to address this situation by improving their efficiency,” said Sharma.
According to the report, a contractor under the purview of the Large Taxpayers’ Office showed to have made more purchase than it actually did to reduce purchase amount from tax liability. The contractor’s tax details showed the purchase of iron and steel worth Rs 81.4 million, but the steel industry that sold the material to the contractor showed the sales of just Rs 3.16 million. The OAG report has also suggested the concerend department to count the deducted amount as taxable income and tax worth Rs 31.1 million be recovered from the contractor after probing into the matter.
In another case, the taxpayer involved in the construction of a foreign diplomatic mission, deducted interest paid on mobilisation of advance taken from the diplomatic office in its tax details. The Income Tax Act does not allow deduction of interest expense on mobilisation of advance except for the interest on loan liabilities on the loans taken for businesses, the report has pointed out. Yet, the tax office allowed such amount to be deducted.
The report has directed such deducted amount be treated as taxable income, and recover tax and fine worth Rs 9.9 million from the taxpayer concerned.
The government has also been cheated in revenue due to the tax office’s oversight on non-compliance of tax deduction at source (TDS) by taxpayers while making payments and reduced depreciation expenses from tax liabilities.
The Income Tax Act has provisioned that the TDS should be reduced while making payment of remuneration, interest, rent, royalty, service charge and retirement benefits. However, a taxpayer involved in cable transmission was found to have violated the rule, deducting TDS worth Rs 4.5 million while purchasing cable transmission worth Rs 30 million. “The TDS amount and the fine amount should be recovered from the taxpayer as per the law,” state the OAG report.
The Large Taxpayers’ Office did not probe the tax details submitted by a taxpayer involved in telecom services for three consecutive years but the auditing of the tax details exposed several drawbacks, according to the report. The telecom company was found not reducing the TDS of the commission paid to a marketing and distribution company. The company reduced just 1.5 percent in TDS instead of 15 percent.
According to the IRD, companies registered with the VAT are entitled to receive payment after reduction of TDS by 1.5 percent but those not registered with the VAT get payment only after reduction of TDS by 15 percent.
The report has told the tax office to make full deduction of TDS on the commission worth Rs 374.5 million paid by the company. The report has asked the office to recover Rs 11.3 million from another telecom company for not reducing TDS of 15 percent, while stressing the need for recovering Rs 181.3 million as TDS from two telecom companies.
A tax payer involved in cable car business in Chitwan was found making more reduction in depreciation cost than required from the tax liabilities. The OAG report has sought to recover of Rs 21.8 million in tax and Rs 6.5 million in fee from the taxpayer after conducting a probe on the matter. Sharma said that the IRD was committed to address such weaknesses to reduce the tax evasion under such circumstances.
Source: Kantipur
