The Inland Revenue Department (IRD) has failed to complete a full audit of one-third of 'suspected' tax frauds.
"IRD has started full audit of 11,334 tax payers — carried over from to last fiscal year from a year ago — but it has been able to complete full audit of only 2,942, which is only 25.96 per cent," according to the report of the Auditor General.
"The full audit of the 2,942 tax payers has helped the government mobilise an additional Rs 8.68 billion," the report said, suggesting the IRD to expand the sampling size and accelerate the full audit process of pending files to check revenue leakage.
Generally, a tax payer files tax on self assessment and the IRD, honouring the tax payers’ integrity, accepts it. However, IRD annually cross checks 1.4 per cent of the files — of tax payers — through random sampling on the basis of risk and does desk review. "If there is any suspicion during the desk review, IRD starts a full audit of them," according to an official at IRD.
However, the department has failed to do a full audit of 8,392 tax payers — till last fiscal year — as it is more involved in administrative work rather than concentrating on audit.
"IRD, instead of being involved in administrative work, should focus on tax compliance and audit, which could contribute more to the government coffer," he said, adding that the unproductive administrative staff has to be minimised and channelised to productive work including expansion of the sampling size.
"If the sampling size of the current 1.4 per cent is increased to five per cent, revenue mobilisation will also go up by three times that will help the government mobilise resources for development activities."
The Auditor General's report has also revealed IRD's incompetency. "The IRD has not only failed to complete full audit of samples within time, but also has no concrete basis of sampling," it said, adding that IRD has failed to comply with the Income Tax Act 2058 BS and VAT Act 2052. "Some of the acts of IRD are also against the Interim Constitution 2063 BS."
However, due to the absence of Public Accounts Committee (PAC) after the dissolution of the Parliament on May 27 last year, there is no check and balance mechanism.
During the Local Donor Meeting recently, development partners had suggested the formation of an extraordinary committee to play the role of the PAC — as an interim measure — consisting of qualified personnel to scrutinise accounts and take necessary action until a regular PAC is established."The audit observations keep piling up year after year with limited efforts towards institutional public financial management improvements," they had said.