Refunds down after VAT scam revelation

By Chandani Kirinde

The detection of the Rs. 4.7 billion VAT refund fraud by the Auditor General’s Department in 2003 has had a favourable impact on Government revenue with total refunds as a percentage of total revenue of the Inland Revenue Department declining rapidly over the past few years.

Tax refunds which peaked at 16.26 percent cent as a per cent of total revenue in 2003 stood at 11.71 per cent in 2004 and then declined to 7.41 in 2005, 5.10% in 2006 and recorded the lowest level last year at 3.88 per cent.

If the tax fraud had not been detected, the rate of tax refund would have reached above 20 per cent, the Auditor General said in his annual report submitted to Parliament recently.

Despite this positive development, the Auditor General said there were many discrepancies in the management of public finances in all the major state sectors with the AG’s problems compounded by poor response to audit queries as well as a shortage of staff at the Department.

The report also said the absence of clearly defined and well formulated accountability arrangements has resulted in the exclusion, from scrutiny by the Auditor General, of 93 Government owned companies incorporated under the Companies Act and six regional development banks under the Regional Development Banks Act involving substantial amounts of public finance.

It has been found that these 93 institutions have a share capital of Rs. 20,989 million, partly or totally owned by the Government. The accounts of these institutions are audited by private audit firms and their annual reports are not tabled in Parliament.

Mihin accounts off-limits
The Auditor General’s Department says it has no mandate to probe accounts of Mihin Lanka and other State companies.
Auditor General S. Swarnajothi told The Sunday Times that the department cannot probe financial mismanagement or irregularities in companies and public institutions registered with the Registrar of Companies. He added that SriLankan Airlines is also operating such companies. He pointed out that there was no Parliamentary control over allocating funds to these institutions as these institutions were outside the purview of the department.
The Attorney General said he has brought this to the notice of the authorities in his latest report submitted to Parliament recently.

From January 2006 to December 2007, the AG’s Department had sent out 20,000 audit queries of which over 4,200 have been unanswered. Meanwhile in audits carried out in several Government ministries, losses and financial mismanagement were detected. In the health care and nutrition sector, audit checks had detected overpayments amounting to over Rs. 47.5 million in relation to construction and consultancy services, salaries, overtime and other allowances, supplies and stocks, meals etc., as well as other losses amounting to over Rs. 62.8 million.

In the water supply and sanitation sector, it was found that the National Water Supply and Drainage Broad (NWSDB) had incurred a nett loss of Rs 1278 million, up from a net loss of Rs. 214 million the previous year mainly due to high personnel costs and pumping costs of electricity.

In the tourism sector, the audit report said that the Ceylon Tourist Board had participated in 90 trade fairs and 40 exhibitions to promote tourism, internationally in 12 countries during 2006 and 2007 respectively and had spent Rs 1,217.8 million on them but despite this tourist arrivals had decreased from 559,603 in 2006 to 494,008 in 2007 while foreign exchange earned too showed a slight decrease.

Similarly the report pointed out financial mismanagement and losses in several other sectors such as education, transport, industries and in local government bodies and provincial councils.

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