Rs. 3.9 billion VAT fraud should be investigated by Inland Revenue Dept.

Public Accounts Committee interim report recommends:

Uditha Kumarasinghe, Irangika Range and Sandasen Marasinghe

The first interim report of the Public Accounts Committee recommends that an investigation should be carried out on the Rs. 3.9 billion VAT fraud by a team of Inland Revenue Department officials under the purview of the Committee and observed the Committee was of the opinion that this appeared to be merely the tip of the iceberg.

Chairman of the Public Accounts Committee, Post and Telecommunication Minister Rauf Hakeem made this observation yesterday at the Parliament as an explanation after submitting the interim report of the Public Accounts Committee. Further the interim report recommended the present Commissioner General of Inland Revenue Department (IRD) should be relieved of his duties until the investigations into the VAT fraud was over.

The Minister also said the Committee recommended the boundaries of that investigation should expand beyond the reported VAT fraud and cover the possible irregularities of tax collections and fraudulent tax refunds not yet detected.

The Minister also stated that the committee proposes the enactment of a Public Interest Disclosure Act to enable and encourage public sector employees to expose corruption and malpractices in the public sector with a guarantee of absolute confidentiality and protection from any possible victimisation.

The Minister also requested not to criticise this report in a political point of view and observed if these frauds were not disclosed the trust of the public on IRD and Finance Ministry would collapse.

He said they would never level personal charges and allegations against those officers.

The Committee has agreed with the findings of Auditor General that the IRD had fraudulently refunded VAT to the tune of Rs. 3.6 billion during November 15, 2002 to August 15, 2004. The Minister also said subsequent to the above report the Auditor General informed the Committee a further fraudulent VAT refund of Rs. 315 million has been made during March 19, 2004 to August 11, 2004 thus increasing the above identified VAT fraud to Rs. 3.9 billion.

Minister Hakeem also said the Committee paid attention to the safety of the documents related to the fraudulent transactions and found 183 out of 235 payment documents relevant to the VAT fraud were missing.

He said the Committee found refunds amounting to Rs. 3.648 billion out of the total fraudulent VAT refunds of Rs. 3.922 billion identified thus far had been made during the incumbent Commissioner General of Inland Revenue's tenure as Commissioner VAT, during October 1, 2003 to October 3, 2005.

The Committee also observed that the IRD's computer system had been manipulated to the extent that two VAT Assessments amounting to Rs. 200.6 billion issued by the Department could not be viewed through the computer screen for control and audit purposes.

The Minister also said that the committee found that IRD had entertained two bogus VAT declarations made by two non existent firms at end of September 2004 even though the Department's own investigations carried out on August 16, 2004 established the fact that these two entities were non existent.

The individual taxable supplies declared in two documents amounted to Rs. 1,216 billion and Rs. 108.4 billion totalling to Rs. 1324.4 billion which constituted 73.5 per cent of the Gross Domestic Product in 2004.

There are 237 companies that with more than Rs. 10 million VAT frauds, the Minister said. Addressing at a press conference at the Parliament complex, the Minister said, the amount of VAT that was misused may be two or three fold than that was disclosed.