A taxpayer in the retail and wholesale sector whose name is withheld was recently audited by the Internal Revenue Commission (IRC) and was found to have deliberately made false declarations to the IRC.
The Audit revealed that this flourishing retail taxpayer declared around K53 million in GST credits for the periods January 2015 to April 2020. In other words, the taxpayer was telling the IRC that the company was paying more than what it was collecting in GST for each and all of those six years.
However, the Audit found a total amount of K61.4 million discrepancies (deliberate false declarations) for the same period; hence when netted off, it resulted in not only reversing the credits but a whopping K8.5 million liability established for the taxpayer to pay.
IRC revealed that several former IRC officers and various tax agents prepared the IRC returns, particularly the Goods & Services Tax (GST) and Corporate Income Tax (CIT) returns for the same periods with different sets of accounts.
GST figures were inflated without proper supporting records and information.
The increase in GST credits in the GST returns increased the taxpayer’s GST refund by millions of kina. Inconsistencies in the GST returns raised red flags for Audits Division for further investigation, which resulted in the taxpayer being penalised with the imposition of additional taxes charged on the GST liability raised.
IRC states that a CIT audit was also conducted as part of the comprehensive audit approach. The audit findings revealed that the taxpayer had inflated purchases in cost of goods sold, overstated salary expenses, and excessive claims for loss of stock and property/equipment that the taxpayer could not substantiate, reducing taxable income.
An adjustment of over K30 million with a penalty of 100 percent was imposed on omitted income for deliberate evasion and as a deterrent measure.
IRC clarified that making false and misleading statements to the IRC is a serious offence with jail time of up to 4 years once convicted. IRC has taken steps to prosecute this case, and those responsible for preparing the tax returns to curb this practice and discourage taxpayers from conducting such practices in the future.
Other administrative actions include issuing an additional tax penalty of up to 100 percent of the base tax-adjusted as provided under the Income Tax Act and issuing a Departure Prohibition Order (DPO) against the company director from leaving the country.
IRC has also effected other measures such as garnishee of the taxpayer’s bank accounts for paying liabilities in the ordinary course of its tax debt recovery process.
“We know that many companies in the retail and wholesale sector are routinely making false declarations to the IRC, and we are profiling a good number of them. False declarations are designed to reduce a taxpayer’s tax liability.
“The underpayment of tax revenue owed to the Government deprives our people of necessary infrastructure, health, education, and other public goods. IRC is therefore increasing its audit focus on businesses that are flourishing, yet pay little taxes to the Government.”
Commissioner Sam Koim said, “It’s a prevalent activity and people have been going on unabated because they thought IRC wouldn’t have the ability to at least check them or hold them to account.
“So, if we go tax payer by tax payer, we will find a lot of similar trends.
“One thing that tax payers seem to be doing is they conveniently destroy evidence and think that IRC would not have the basis.
IRC said this is the first of the many flourishing businesses currently being audited. Those who pervasively submit false declarations and destroy records will blame themselves, as there are provisions under the Income Tax Act and Criminal Code for them to be prosecuted.
“So I would warn all the businesses to do the right thing because doing the wrong thing doesn’t pay. It may seem that it is paying for now but might end up having your entire business grounded. That’s how the tax powers are. That’s the warning.”