In the name of tax settlement, taxes collected from people have been given back to the businessmen. Not only this, the taxes admitted by many of the business clans have been returned to them saying that ‘for the sake of justice’.

-Krishna Acharya/ Krishna Gyanwali: Center for Investigative Journalism- Nepal

• Triveni distillery had to pay a worth of three billion and 331.5 million rupees in various titles. But, the Tax Settlement Commission recovered only total of 39.9 million and waived the rest which is three billion and 291.6 million rupees. Triveni group thus received nearly 99 percent discount on tax. The more fascinating fact is, after giving a huge discount, only a total of 12.4 million rupees out of 708.7 million rupees was recovered from distilleries which are Value Added Tax (VAT) money paid by alcohol consumers.

• Saurabh Photo International, a firm had to pay 46.685 million rupees in taxes.  It was given 99.9 percent discount and announced to recover only ten thousand rupees from it. Because of the commission’s decision, it made a financial benefit of 46.675 million rupees. The other companies associated with Saurabh Group also received alike heavy discounts.

• 12 taxpayers have been given 100 percent discount on VAT. Ideally, VAT is an amount determined by tax administration also the ‘collection of money from customers.’ To give discount on VAT amount means to send state’s money back to moneybags of businessmen.

These are only the few intriguing cases of tax discount where decisions have been made for the financial welfare of corporate taxpayers. A three member tax settlement commission formed in 2014 decided to collect only nine billion and 546.1 million rupees out of 30 billion and 525.77 million. According to the 2015 report floated by the commission, 20 billion 979.66 million rupees amount was given as tax discount.

The Commission decided to recover a total of nine billion and 546.11 million rupees tax from companies, mostly from public enterprises. Among the recovered tax amount, the sharing percentage of public agencies is 57. In other words, from government agencies, commission decided to collect five billion and 443.6 million rupees out of 11 billion and 856.6 million. The details reveal that out of 18 billion and 668 million, the commission has collected only four billion and 102.42 million rupees by waiving the rest, 22 percent of total amount. This is a clear sign that commission’s strategy is to sternly squeeze the government agencies, and to provide heavy discounts to private companies on the other hand.

‘Based on the situation and significance Justice can be given to industrialists and businessmen in case they are unable to pay the taxes,’ Gauri Bahadur Karki, the ex-chief of special court says, ‘this decision cannot be taken because the tax discount has been given arbitrarily emptying the national treasury.’

According to the tax settlement commission act 1976, the government had formed a three member commission under the chairmanship of chartered account Lum Dhwoj Mahat. Other members were, namely, chartered accountant Umesh Prasad Dhakal, director of (then) Internal Revenue Department (currently suspended) Choodamani Sharma. Among them, Sharma, accused of wrongdoing in tax settlement, was arrested by Commission for Investigation of Abuse of Authority (CIAA) on 2nd June 2017.

After the chairman Mahat and member Dhakal did not show up at CIAA office, arrest warrant orders have been issued on their names. Report says, among the taxpayers (avoiding taxes for years), one thousand seven hundred and 26 had requested for tax discount to the commission. The commission then submitted a report by announcing discount to one thousand and 69 taxpayers. After analyzing 200 plus application of companies (having huge due tax amount to pay) from 288 pages document, an information obtained from a high level source at revenue administration, suspicion was found that discount was settled through mutual dealings.

Till the end of fiscal year of 2014, the commission was authorized to review i) income tax act ii) ii) controversial value added tax (VAT) act and iii) other taxes imposed as per the excise duty act. As mentioned in the decision booklet of Feb 5, 2015 ministerial cabinet, commission was assigned the role to review the due amount assessed according to alcohol and custom act and during the implementation of education/healthcare services fee. ‘But the cases of tax evasion through duplicate billing of VAT are not entitled as  the work area of commission, ‘ declared in ministerial cabinet decision, ‘To sort out the due tax amount and redetermine it, commission can reach into an agreement through negotiations and mutual understanding with taxpayers.’

Discount to Deniers, Irregularity in VAT

As per the figures in report, the settled 147 applications are pending at administrative scrutiny, and 128 pending at revenue tribunal court. There are 44 applications related to the ‘cases pending at court’ and ‘change in revenue title’ – mostly from taxpayers titling ‘regarding due tax amount’ which means 90 taxpayers out of one thousand and 69 remained the tax deniers.

Admitting tax is obligatory to taxpayers after its assessment. By the time taxpayers feel injustice and unfair, they can reach out up to three level judicial bodies. For administrative review or reassessment, the director general of Internal Revenue Department is the first hearing body. If that does not satisfy taxpayer, he or she can go to tax judiciary spearheaded by the judge of appellate court. Supreme Court is the final body to seek justice in case judiciary’s decision does not come under the favor of taxpayers. However, commission granted heavy discount to nearly 65 percent of taxpayers who have been defying the existing provision of justice seeking process. Based on the liability, the due tax amount of such tax deniers is 9 billion and 730 million (32 percent).

26 taxpayers got more than 100 million discounts in taxes whereas three other companies received more than one billion. The highest discount receiving company is Triveni Distillery amounting to three billion and 391.6 million rupees. Likewise, Krishi Bikas Bank received discount of one billion and 989.8 million and Rastriya Beema Sansthan got one billion and 702 million rupees discount.

Percentage-wise, the top five discount receivers are Saurabh Photo International, Wizard Industry, Oriental Hotel, Bhajuratna Engineering & Sales and JTE. These companies got up to 99 percent discount on total requested amount. Commission treated same to rest of the companies totaling 68 taxpayers. Data reveals that 166 taxpayers have obtained more than 50 percent discount.

Furthermore, the given discount has exceeded the limit on VAT amount (collected from consumption of goods and services) which was supposed to go in state treasury. The commission decided to grant tax discounts to 125 big companies up to three billion and 935.31 million rupees. ‘To give paid VAT amount back to corporate is one of the biggest crimes from the standpoint of revenue leakage, former deputy auditor general Sukadev Khatri said. “While buying a stuff of one thousand rupees, as per the tax law, everyone must pay 130 rupees as VAT to the business-person. And, here, the business-person’s role is just a collector who later must admit the VAT amount to state treasury.”

50 companies have received more than 90 percent tax discounts; that is, only 10 percent amount was deposited to state treasury and the remaining amount was waived. The closer look at VAT records unveils a distinct list of 58 taxpayer companies receiving ten million plus discount. Similarly, nine taxpayers have received 100 million plus rupees discount. In this, Triveni Distillery comes first and others are, namely, Mount Everest Brewery, Ncell, Nepal Telecom, Fulbari Hotel, Gorkha Brewery, Space Time, Herbo International and United Telecom Limited (UTL).

Earlier, Herbo International Company had faced legal crackdown after prosecuted on illegitimate network marketing business. However, including other taxes, it has received a total of 137.88 million rupees discount out of 152.88 million – in which 120.81 million rupees is the amount of discount only in VAT. ‘It is posing serious questions, whether the disputed commission has worked in an interest of preventing public revenue collection instead of purely determining tax issues,’ Mr. Karki, former chairman of special court reiterates, ‘Taxes have been waived erratically. Officers involved in this crime should not be left unpunished.’

The Gone Money

The commission has apparently made a much controversial decision – ‘returning admitted tax amount to the taxpayers’. In many cases, the settled amount is higher than the amount requested in application. In few cases, while making a decision to collect very little revenue, the collected tax amount has been routed back. After analyzing the report, over a half-dozen taxpayers’ cases have found to be dealt in similar way. One of the officers at auditor general said, ‘I am not in a position to spell the names one by one, but some companies have received full discount in principal amount.’

Due to discount given to nine taxpaying companies, a total of 78.2 million rupees has gone from state treasury. A company named Tea Estate can be taken as example. Commission decided to collect only 2.6 million rupees from the company while it had to deposit 79.9 million. Perversely, it received 26.5 million from the state treasury. Likewise, Nepal Credit and Commerce Bank, Everest Bank, Rebarn International and Rolling River Distillery have same fate who received higher tax discount than the amount mentioned in application. Why did this happen? One of the high ranking officers at commission says, ‘It is an abuse of provision stated in Tax Settlement Act -1976 that the decisions of commission never go in court.’ There are examples where commission has not recovered a single rupee rather waived full due tax amount.’ According to him, one company, earlier agreed to pay 43 million out of 990 million. Later, same thing happened, not a rupee was collected but the entire amount was waived.

Dominance of Distilleries

Companies can get discounts under certain conditions such as –  sick industries turning to bankruptcy, going into liquidation, troubled by natural disasters and thus unlikely to pay due taxes. Though none of the conditions were met by distilleries, commission granted heavy discounts to them. Ten distillery companies have got discounts ranging from 5.9 million to 3.29 billion. Commission decided to give discount of 5.20 billion rupees to these companies who had to admit 5.24 billion taxes. Among seven companies, each got discount in VAT amount up to 1.29 billion.

However, considering liquor as a substance of opulence, Nepal government increases the excise duty on it every year. Even if the annual tax and custom tariff on liquor is sky rocketing, commission has encouraged and prioritized distillery companies by not recovering the reasonable amount of taxes from them.

Stretching the Deadline

In its first public notice, the commission announced companies to participate in tax settlement process. But, only 153 applications were received. The commission then proposed to extend the deadline at ministerial cabinet in order to get more applications.

The Tax Settlement Commission was constituted by cabinet of ministers in January, 2014 that had to finish its assignment within five month time. Due to less number of application received during the given time frame, cabinet allowed to elongate its tasks for another three more months. April 2015 earthquake became one of the fitting reasons to extend the date for both commission and taxpayers who had remained soundless for last three months before the earthquake. However, the commission got a bit off the ground by setting up its office at Internal Revenue Department. But, taxpayers and commission’s officers mutually agreed to showcase a persuasive reason of natural disaster. ‘Due to earthquake, not enough applications were received,’ a made-up explanation functioned well to extend commission’s tenure for three more months (up to September 2015).  ‘Quake badly hindered the commission’s work – so its tenure extended,’ former finance minister Ram Sharan Mahat stated. But, he denied offering opinion about the activities of commission as the case is being scrutinized by Commission for Investigation of Abuse of Authority (CIAA) and court.

Upon a question regarding the justification of commission’s formation, he responded, ‘There are many pending cases of taxes which are hard to recover, some from bankrupt companies including other unsolved issues. Since the commission was formed with good interest aiming to settle and resolve all these issues.’ He stressed that he was unaware about the discount amount. ‘According to law, the taxpayers’ documents are secretly kept in concerned offices. I was not the finance minister when commission submitted the report.’ He added, ‘They (officers from the commission) must be accountable for making decision on giving discount. And they should be listened too.’

Businessmen Benefitted Much

If observed subjectively, especially the ‘Trading’ companies have gained more profit from the Tax Settlement Commission. As per the analysis of record, 47 companies are of ‘Traders’ type. These companies were supposed to pay 1.8 billion taxes. But, the deposited amount to state treasury is only 16 percent or 287.9 million and remaining amount (84 percent) is waived.

By keeping certain percentage amount for itself, trading company sells goods to consumers, imported from another country, but it does not produce anything on its own. These are low risk taking investment companies. In regard of tax, state perceives and treats trading companies more strictly than stuff producing companies. On the contrary, the commission has taken a reverse strategy by giving them discount in VAT amount.

As per the records, the total tax to be recovered from the traders is 813.7 million rupees. But, the commission gave discount of 690.8 million rupees to the trading companies – totally unfair to consumers and an exploitative strategy to misuse state fund intending to nourish trading companies.

Discount Given to Non-applicants

The non-applicants (taxpayers) are also found to receive discounts from the commission. Around a dozen of companies, not filing any applications, are in the list of tax settlement. Three companies have received 10 million plus rupees tax discount and rest got the less than that. Laxmi Bank, missing in the applicants’ list got the highest tax discount. Earlier, it agreed to pay 27.5 million rupees. Likewise, more than 10 million rupees taxes to be paid by Avco International and Kathmandu Maida Mill have been waived. Since the granular details cannot be retrieved, tax discount from many other applicants remained ‘uncalculated’. Even Internal Revenue Department has confirmed that commission gave tax discount to non-applicants. ‘We could not locate any applications though CIAA directed us to review the files,’ sources said, ‘We assumed that the files were lost. However, in the last minute, commission made decisions for some companies who did not file any applications.’

Report: Captivating and Ironic

According to the figures, commission has apparently received tax discount request applications even for less than ten thousand rupees, and they are mostly from outside Kathmandu. It seems the equivalent costs needed for transportation and administrative have been deliberately waived while the same sum of amount is enough to pay for due tax amount. For instance, an application of S. Packaging company amounting to five thousand and nine hundred rupees. Another, Bir Bahadur Malla from Mahendranagar lodged application for a discount of five thousand rupees. Diwa Nirman Sewa also applied to get the discount of six thousand four hundred and ninety eight rupees.  Likewise, commission received application from a company, avoiding tax since 1976, is another interesting case. Record shows it has requested a discount amount of sixty five thousand rupees.

Just to grant discount, the commission has condemned the prevailing infrastructure and working pattern of tax administration – a clear sign of justifying its decision. The tax administration has been criticized by portraying various reasons like – taxpayers were not equally treated, not given a chance to address their issues, taken tough decisions to those even after the expiration of terms. ‘Additional taxes have been imposed to them who did not submit the recompense bill. But the submission of evidences of expenditure to the commission have been found,’ mentioned in the report, ‘Records show the evidences were submitted when the amendment of tax assessment was going on.’

In the report, commission has insisted to grant tax discount claiming that Value Added Taxes (VAT) were intentionally imposed to individuals, though they were doing business of VAT-free-stuffs. The reasons mentioned in the reports are, i) Due taxes were increased with additional interest amount though businessmen appealed to backtrack it, ii) paid tax amount were deposited on different headings though no errors found while filling up the voucher form by taxpayers iii) other technical mistakes were made while updating  the records of paid VAT amount.

In a defensive response, Ram Sharan Mahat, the former finance minister has publicly admired the performance of commission saying that ‘ten billion rupees has been collected in national treasury.’ He has been consistently justifying the existence, formation and working procedure of commission but not rationally arguing on why he granted 21 billion rupees in discount. The commission was formed on the foundation of Income Tax Act – 2001. ‘As per the earlier income tax act, the rationality of Tax Settlement Act -1976 has now ended,’ Sukadev Khatri, former deputy auditor general says, ‘the income tax act not eliminated yet, is a mistake, also a key reason that tax settlement act is still in existence.’ He added, ‘After taking stern actions to the officials involved, the act should be scrapped without any delay, otherwise the loot in state fund will recur.’