House panel investigates Rs21b tax exemption case

April 28, 2017

The Kathmandu Post, Post Report, 28th April 2017, Kathmandu 

The Parliamentary Committee on Public Accounts has directed the Ministry of Finance to submit a report prepared by the Tax Settlement Commission within 14 days, suspecting negligence in tax exemption provided to various enterprises, which could have prevented entry of billions of rupees into the state coffers.

The House committee issued the instruction on Thursday after the annual report of the Office of the Auditor General (OAG) said the commission exempted taxes worth Rs21 billion, which was 68 percent of the total due or outstanding tax amount determined by the commission. The report has also said most of the taxpayers were offered tax exemptions not because the disputes had reached the court but because they were not willing to abide by the instructions of tax authorities.

The hearing on the case, however, is unlikely to take place anytime soon. 

“We believe discussions on this issue will be held only after the local elections, as most of the lawmakers have started returning to their constituencies to take part in the polls,” Public Accounts Committee Secretary Surendra Aryal said, adding, “In the meantime, we will be carrying out internal investigations.”

The Ministry of Finance had formed the Tax Settlement Commission in the fiscal year 2012-13. At that time the ministry was headed by senior Nepali Congress leader Ram Sharan Mahat. Mahat had formed a three-member commission under LD Mahat, a chartered accountant.

The commission had assessed taxes that were due or outstanding till the fiscal year 2012-13. The commission had received 1,726 applications seeking settlement of due tax amount worth Rs40.8 billion. It had reviewed 1,069 applications from which due tax amount of Rs30.5 billion should have been recovered.

But during the course of negotiations, the commission exempted taxes worth Rs21 billion and recovered only Rs9.5 billion in due tax amount.

The OAG report says one brewery was given value added tax exemption of Rs400 million in a case in which due tax amount stood at Rs401.4 million. This means tax authorities were given mandate to recover only 0.4 percent of the due tax amount.

In other case, the commission recommended for recovery of only 10 percent of the due tax amount, says the report. This was the case related to a hotel based in Pokhara, in which tax authorities had sought to collect Rs184.3 million in value added taxes.

In total, value added taxes worth Rs770 million were exempted based on the recommendation of the commission, says the report. “Since this value added tax was collected from consumers, decision to exempt the tax has aided revenue leakage. So, the officials of the commission must be accountable for this,” adds the report.

The commission was formed as per the provision in the Tax Settlement Commission Act 1976. 

The Act, among others, has given full authority to the commission to collect due or outstanding tax amount and look into cases filed at the Revenue Tribunal based on the request made by taxpayers. “The Commission may, as required, specify modus operandi in relation to the assessment and recovery of taxes, and no question may be raised in any court in relation to the modus operandi so specified by the Commission,” says the Act.