VAT transactions above Rs 50K only through banking system: Govt

Business firms registered with value added tax (VAT) would now need to carry out all their transactions above Rs 50,000 through banking system. The new rule came into effect after the government effected changes in the existing revenue regulations. The new mandatory provision has been enforced mainly with a view to checking VAT leakage and trace vendors at all levels of transactions.

Likewise, the government granted authority to Inland Revenue Department (IRD) to hold tax evaders into judicial custody. So far, only Revenue Investigation Authority entrusted to enforce Revenue Leakage (Control) Act was allowed to hold suspected tax payers in judicial custody.

“The new authority has been granted to IRD mainly to add teeth and bolster its investigation,” said an official at the Ministry of Finance (MoF). The authority has been granted through amendment in VAT Act, which has been incorporated in the Finance Bill for the new fiscal year.

In a bid to plug revenue evasion, the government has also provisioned stringent punishment against tax evaders. “Apart from tax and penalty, IRD can now seek imprisonment of tax evaders for as much as 5 years depending on the gravity of crime,” said the source.

Furthermore, the new amendment in law does not spare close aides that support and facilitate the business firms to evade revenue. “We will not allow them go unpunished as in the past. We will now slap them with a fine equal to 50 percent of total revenue lost in the case,” said the source.

The government effected the changes in the law mainly after IRD uncovered widespread use of fake VAT receipts in the market, something which inflicted huge losses in VAT revenue.

In these cases, which officials termed as fake VAT receipt racket, IRD had found 518 firms, including those belonging to reputed business houses of the country, of creating fake VAT transactions to inflate their cost, thereby evading taxes.

On the basis of fake receipts, some of these firms had even claimed refund of VAT that they never paid.

Together, the racket was estimated to have created fake transactions worth Rs 10 billion (over US$ 138 million) and through its action, IRD expected to realize revenue of over Rs 4 billion.

“Most importantly, the new arrangement will help prevent such losses as the mandatory transactions through banking system will now help up trace vendors and cross-verify transactions easily,” said the source.

Officials, however, lambasted the government for not enforcing electronic cash register and online transaction records. The government had initially promised to control fake VAT transactions through budgetary announcement. However, the budget remained silent on those measures recommended by IRD.