EDITORIAL: Curb tax fraud

Tax fraud while cheats government out of millions of rupees, it also perpetuates corruption; it must be curbed

There is a famous quote, attributed to Benjamin Franklin, that there are only two certainties in life: death and taxes. But some in Nepal may slightly disagree — with the latter. At least, it can be said so for 42 firms, which have been booked by the Department of Revenue Investigation (DRI). The revenue investigation body says these 42 firms have been booked for revenue misappropriation — tax fraud or non-payment of tax — worth Rs 5.77 billion. Many firms had not been paying taxes due at the customs office while importing goods while there are some individuals/firms that have not paid applicable taxes for a decade or misused foreign currency or imported goods, including gold, illegally. Ranjan Tripathi, managing director of Miteri International, the importer of Adidas products, is accused of not paying Rs 750 million. Then there is Binod Kumar Gupta, director of Himalayan Cargo, who has been booked for not paying applicable taxes for a decade. The DRI’s crackdown is a good move, but what is more worrisome is what has come to the fore could be just the tip of the iceberg and the problem runs deep, as the DRI investigation has revealed involvement of eight government officials of revenue administration in the fraud.

A deeper probe into the involved government officials could reveal more about the status of tax fraud in the country. In the current case of tax fraud, DRI investigation has clearly linked government officials. This shows tax evasion is not possible without the involvement of the people from concerned government agencies. Take for example the case of Himalayan Cargo. How come the non-payment of applicable taxes never came under the tax authority’s radar? So, now while the firms — and their owners — should face legal action as per the land of the law, the involved government officials should be probed further so that they can reveal more. This will help the DRI continue its crackdown on tax evaders. Tax evasion is a serious crime. It while in itself is a corruption; it perpetuates corruption in government agencies.

Taxes are the most important source of government revenues. That’s why governments set up an extensive network and put in place mechanisms to calculate and collect taxes. Tax fraud cheats the government out of millions of rupees. That’s why it is punishable by fines, penalties or jail terms. Nonetheless, those with unscrupulous mindsets tend to find loopholes to evade taxes, and when they find government officials in the system to work with them hand in a glove, it just becomes easier for them to make a dent in the government revenue. In a country like Nepal where pervasive corruption is a major challenge — Nepal ranks 122nd out of 176 countries in the Transparency Internationals’ Corruption Perception Index — effective enforcement of tax laws requires a wide-ranging approach. The tax authorities, however, should first start by curbing corruption within the system. Corrupt tax officials often work in cahoots with those taxpayers who want to evade taxes. The DRI investigation in this recent case has shown the same. The DRI now should not stop here and must continue its crackdown on tax fraud. It should not be a one-off event. Sustained efforts are a must to make everyone comply with the country’s tax laws.

Irregularities galore

Irregularities and corruption in development projects are very common in Nepal even though we have laws and various institutions to deal with such malpractices. Irregularities in development projects will lead to compromise on quality of works affecting the general public. A report from Chandrapur Municipality in Rautahat is a case in point. A five-member probe panel formed by the municipality has found irregularities in over 1000 development projects in the last fiscal.

The panel led by Jung Bahadur Ghalan presented its report at the town assembly meeting. It found the use of sub-standard materials, unnecessary and excess payments, and lack of public hearing on the expenses of the projects. The concerned government agencies must take legal actions against those involved in irregularities. No quality development works are carried out at local levels as long as irregularities are unchecked. Elected officials must ensure that public funds are spent on development works in a transparent manner. Controlling irregularities is a first step to ensure good governance.