There is no effective system for tracking the sources of income of holders of public posts and their properties and their lifestyles

Preliminary investigations by the Commission for the Investigation of Abuse of Authority (CIAA) have revealed that the Director General of Inland Revenue Department (IRD) Chudamani Sharma was involved in the huge embezzlement of revenue. He has been arrested for his alleged role in embezzlement in which he exempted huge taxes, including value added tax, to the tune of Rs.21 billion when he was member secretary of the Tax Settlement Commission (TSC) formed to look into the revenue to be realised from various business firms. A few weeks ago, the parliamentary Public Accounts Committee (PAC) had asked about the decisions made by the TSC to exempt large sums from big business firms. The TSC was formed in 2015 in order to deal with pending tax disputes. It was then dissolved after submitting its findings in a report in December of 2015.

Out of the 1,726 applications that the TSC had received during this period it was able to settle only 1,069 applications. There are evidences that although the TSC had received the applications to settle taxes that were pending to the tune of Rs 30.5 billion it had been able to recover taxes worth only Rs. 9.5 billion from the businesses and the rest remains uncollected. Seeing something fishy, the PAC had asked why the TSC had been able to realise only Rs. 9.5 billion. It is apparent that TSC was responsible for exempting taxes including VAT that were supposed to be deposited into the government coffers by big firms. By doing this the TSC was apparently acting for illegal gains. Meanwhile, despite repeated requests Sharma had not been fixing and collecting taxes from some big firms and his actions were questionable.

This corruption case shows the way the tentacles of corruption are entrenched in the bureaucracy. What is more, most of the offenders are getting away with the loot as bureaucrats have political connections, feeding the nexus of corruption involving business people, bureaucrats and politicians. All of such nefarious acts are enshrouded in the lack of transparency and of accountability, with punitive action taking place only as exceptions. Sharma is also accused of not taking any concrete action to realise the capital gain tax on the sale of major Ncell holdings to another foreign company. At the same time, the PAC stands accused of not giving strict instruction to the IRD to collect the overdue huge government revenue. It is a heinous financial crime on the part of government officials to exempt taxes without compelling grounds; the exemption from VAT liability can under no circumstances be forgiven as VAT is the tax people have paid and the role of businessmen is just to deposit it into the government coffers without delay. It is also interesting that Ncell has paid the remaining amount of capital gain tax (over Rs.13 billion) after Sharma’s arrest and prosecution. The anti-graft body should probe the Sharma’s irregularities more deeply in which other people are highly likely to be involved as well. There is no effective system in the country for tracking the sources of income of holders of public posts and their properties and lifestyles and of taking punitive action wherever wrongdoing is detected. This big loophole must be plugged.

Follow guideline

The Ministry of Federal Affairs and Local Development has warned the elected local level representatives against taking any ad hoc decision on financial matters for the sake of earning popularity. The Ministry issued a circular to this effect fearing that the local level bodies may indulge in financial irregularities and indiscipline before they are familiar with the nitty-gritty of the financial issues. Shortly after assuming office, some local level elected officials, including mayor of the Kathmandu Metropolitan City, decided that they would give additional social security allowances to elderly and others.

The government has allocated millions of rupees for the local level units for carrying out local level development programmes. But their institutional capacity has yet to be strengthened. So, it is the responsibility of the concerned ministry to give extensive training and orientation to the elected representatives before they take any decision on financial issues. There is also a high chance that a large chunk of budget could be misused to purchase luxurious items, vehicles and furniture. All elected representatives must follow the ministry’s operation guideline that has clearly outlined the function, duties and powers of all elected officials.