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Doctoring co data

VAT intel seeks banks' co-op

DOULOT AKTER MALA | June 21, 2020 00:00:00

Banks may have to verify inconsistencies in the information businesses will provide in VAT returns and financial reports before approving a loan application.

The lenders may also have to notify the VAT intelligence team immediately if they suspect tempering of turnover figure, tax officials said.

Syed Mushfequr Rahman, director general of the VAT Audit, Intelligence and Investigation Directorate under the National Board of Revenue or NBR, on Thursday sent a letter to deputy governor Ahmed Jamal seeking the central bank's help for an order to the banks in this connection.

The intelligence wing has sent copies of the letter to all managing directors and chief operating officers of banks.

In the letter, the intelligence chief warned the relevant bank official will be held responsible if his agency finds any mismatch between the VAT return and the annual audit report of a taxpayer.

After this notice, businesses with the exception of fully export-oriented firms may be required to submit their VAT returns with loan applications.

Talking to the FE on Saturday, the VAT intelligence chief said his office stepped in after the detection of several cases of inconsistencies in information between the annual financial audit report and VAT returns.

"We have sent the letter as per section 82 of the VAT and Supplementary Duty Act-2012," he said.

The legal provisions oblige banks to provide required information to the VAT authority and even the concerned bank official may face punitive action for non-compliance.

"Taxpayers usually submit a different annual financial report, which does not correspond with the return data causing revenue loss to the public exchequer," Mr Rahman said.

"Now all organisations, including banks, NBR, and Registrar of Joint Stock & Companies must follow the same data," he added.

This is expected to prevent revenue leakage while serving banks' interest since companies tend to cook up financial data, he said.

As per VAT law, every VAT-registered business is required to submit a return each month to the VAT authority notifying the sales and purchase and financial transactions.

The government usually gets information about tax liability and the paid amount of a taxpayer on the basis of furnished information in the VAT return.

"There should be consistencies between the information of VAT returns and the annual financial or audit report of a taxpayer," Mr Rahman said in the letter.

While auditing commercial activities of businesses, the VAT authority often detects gross mismatch between the stated figures of the sales information and the actual turnover of a company.

Some businesses show turnover or sales much lower in the VAT returns than that of the annual financial report of a company.

A large chunk of the turnover of businesses remained undisclosed.

The government is losing revenues due to concealment of actual information, which is "unexpected", the letter said.

"It is a violation of VAT and SD Act-2012 and Financial Reporting Act-2015," it added.

Economists, however, have raised question as to how start-up businesses will submit their VAT returns at the time of loan application.

Executive director of the Policy Research Institute (PRI) Dr Ahsan H Mansur said those who will start up their business with the approved loan of banks may find it difficult to comply.

He said the banks are already overburdened with several tasks and may not be able to share responsibilities of VAT officials.

"In case-to-case basis, the VAT officials can seek banks' cooperation to conduct investigation, not on a blanket basis," he added.

He said it is unlikely for a listed company to hide information in its annual audit report or monthly VAT return.

In contrast, audited financial report is not mandatory for non-listed firms.

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