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Bouncing cheque scandal hits IRD, no action taken to recover Rs. 3 billion
Between 2015 and June last year, the Inland Revenue Department (IRD) lost more than Rs 3 billion by way of dishonoured cheques and, despite an alarming rise, the Government’s tax collector has not strengthened its internal control systems, the Auditor General’s Department states.
Taxpayers remit money to the IRD’s revenue collection account, mostly by cheques. The banks that collect the money are connected to its computer system. Once payment details are furnished, the respective tax files are updated.
But there has been a gradual increase in the number of dishonoured cheques, the Auditor General’s Department says in a Special Report that examines steps taken by the IRD to recover money pertaining to dishonoured cheques.
By December 31, 2015, the value of 4,495 dishonoured cheques was more than Rs 1 billion. By June 30 last year, the number of cheques had increased to 8,060 with the value standing at Rs 3.031 billon. They include cheques worth Rs 2.039 billion given in respect of Value Added Tax (VAT) by taxpayers who collected it from third parties such as retail customers.
“Accordingly, as the cheques relevant to this indirect tax had become dishonoured and action had not been taken to collect money for such dishonoured cheques expeditiously, it was observed that the Department had made room for the taxpayers to misuse the Government revenue,” the report says.
Several dishonoured cheques were found to be from the same taxpayers, the report says, without naming them. There are 88 such taxpayers with 322 cheques of Rs 1 million or more, totaling Rs 1.108 billion.
The Auditor General observed “poor performance” by the IRD in settling such cheques. A failure to settle these outstanding taxes has deprived the Government of significant revenue.
Despite repeated, annual audit queries, the IRD has also not taken steps to minimise instances of cheques becoming dishonoured or to introduce an alternative payment method.
Of the cheques, 582 are drawn for values of Rs 1 million and higher (totaling Rs 1.673 billion). A further 719 cheques were drawn for values of between Rs 500,000 and Rs 1 million (totaling Rs 463.884 million). By settling these two categories of dishonoured cheques alone, the IRD could clear Rs 2.137 billion in outstanding tax payments.
Among other things, the Auditor General has recommended that money collection should now be shifted to other methods such as bank drafts and technical payments in addition to cheques. More than a billion rupees must promptly be recovered from the 88 taxpayers whose cheques had become repeatedly dishonoured and only cash or bank drafts must be accepted from such persons.
The Auditor General also calls for more stringent action to be taken under available legal provisions such as suspension of bank account of the taxpayer; suspension or taking over of his properties; collecting the loan balances receivable to the taxpayer from external parties by the IRD; and initiating court action relating to dishonoured cheques exceeding Rs 500,000 in value.