Kathmandu, September 13

The Department of Revenue Investigation (DRI) has filed a case against fake value added tax (VAT) bill scam in Parsa District Court today, seeking Rs 198.37 million from the nine accused individuals of Birgunj — the major gateway for third-country trade and bilateral trade with southern neighbour India.

The case has come to light at a time when the government has been struggling to meet its VAT collection target. The VAT shortfall in first month of fiscal 2017-18 stood at around Rs two billion.

This is a second major VAT scam investigated by the revenue administration after the infamous VAT scam that surfaced in fiscal 2011-12. Back then, the government had found revenue loss worth Rs 10.6 billion from VAT fraud, with major corporate houses involved in VAT evasion.

Today, the DRI filed case against nine individuals — Ganesh Rijal, Deepak Kumar Verma, Pradeep Kumar Verma, Upendra Mahato, Anil Mahato Dhanuk, Gulsan Shrivastav, Dasharath Hajara, Rajesh Kumar Shrivastav and Sikendra Kumar Shrivastav — in the VAT scam. The DRI had started cracking down on the scammers around three months ago, according to Bhupal Baral, director general of DRI.

The department has sought Rs 198.37 million, the amount in question, and three years of imprisonment for the accused, as per the provision of the Revenue Leakage (Investigation and Control) Act-1995.

The accused had sought VAT rebate from the government submitting fake VAT bills in the name of Kalika Trade and Suppliers, Aditya Trade and Suppliers and Vishwokarma Trade Concern. “Additional 29 firms that

conducted businesses with these firms are also under the DRI’s radar,” said Baral, adding, “The major challenge in effective enforcement of tax regime is due to fake VAT bills.”

First uncovered in 2011-12, importing companies create fake firms to show their products have been sold out to seek VAT rebate from the government. The government collects VAT at the customs point while goods are being imported and rebates the amount to the importers once they submit the evidence that the products have been sold.

The government rebates the VAT to importers believing that the wholesalers and dealers to whom the importing firms sold their products will collect VAT from the consumers and submit VAT to the revenue offices, as the VAT is levied at the consumer end.

However, in many cases, the importing firms have been found to be duping the government agencies by creating fake companies that they claim to have sold the goods to. In doing so, the importing companies could directly sell the products to the consumers, in which case they would again slap the VAT amount on sales as well.

Meanwhile, by the time the government officials suspect something amiss, the importing firms would have already vanished and it would be near impossible to track the real owner as in most cases the companies would be registered in the name of one of the staffers or other common people.