Tax payers, who are filing different financial reports at different agencies, may soon come under the government’s radar as Nepal Rastra Bank (NRB) and Inland Revenue Department (IRD) have partnered to cross-check income details filed by tax payers.

NRB is preparing to issue a directive to banks and financial institutions (BFIs) to cross-check the financial statements submitted by the borrowers with those submitted to the tax offices before providing loans to the concerned borrowers.

This step, according to finance ministry officials, is expected to control rampant revenue leakages prevalent due to business firms submitting fake financial details.

The rule, which NRB is going to introduce in the near future, is expected to end the tax compliance gap and promote transparency.

“This provision, in turn, will also minimise the credit risk of the BFIs as the borrowers will have to submit accurate financial statements at different agencies because the details can be easily cross-checked,” said Laxman Aryal, chief of the Revenue Division under the Ministry of Finance.

“As business firms have been producing different balance sheets for the purpose of tax submission, for their own purpose and for obtaining loans, the government has been losing a huge amount of revenue.”

It is reported that around 60 per cent of the taxpayer firms is not fully complying with the tax laws.

“We are unaware about the real business efficiency of the tax payers because they have been producing three different financial statements for different purposes,” said Aryal. “In developed countries, tax submission represents the real business efficiency of the
tax payers.”

The government, through the fiscal budget 2016-17, has urged BFIs to cross-check the tax submission details of the concerned borrowers while floating loans. It has made this policy decision to end the tax compliance gap and also to minimise the chances of loan embezzlement. NRB and IRD have been doing the groundwork to execute the government’s policy.

After the government’s announcement, IRD has already urged the tax offices to provide the tax submission details of the tax payers if any particular BFI approaches them. “IRD has already instructed the concerned offices to provide necessary information to the BFIs as and when requested,” said Chudamani Sharma, director general of IRD. “Once NRB issues the directive to the BFIs, it will be mandatory for the BFIs to float loans as per the tax submission details, which is considered the real business efficiency of the concerned firms.”

As per Sharma, this provision will end the trend of producing different financial reports for different purposes. “Tax compliance gap will be automatically minimised once BFIs start providing loans based on tax submission details,” he stated. “It will also control the possibility of loans being granted because of undue pressure on BFIs.”

Finance ministry sources have claimed that BFIs have also lobbied with the government for this provision for secured credit flow from the banks.

NRB Executive Director Shiv Nath Pandey said that the central bank will soon issue the directive to the BFIs for the execution of this policy.

source:the himalayan times,25 july 2016