After filing a case against some sellers of fake Value Added Tax bills in first two phases, the Department of Revenue Investigation is preparing to file revenue evasion charges against the buyers of such bills.

Department officials are said to have found that around 1,000 firms had purchased fake VAT bills from over 100 firms which were established just to sell fake VAT bills. Use of the bills could lead to VAT evasion worth an estimated Rs10 billion, in one of the biggest ever revenue scams in the country.

“In the first phase, we are preparing to file a case against 14 to 15 people who were involved in purchasing fake VAT bills for their firms,” said Dhruba Ghimire, deputy director general of the department. “We are seeking the opinion of the government attorney before filing the case.”

Department officials don’t want to divulge the names of the firms which purchased such bills but said that most of them are contractors, suppliers and industries. Even multinational companies, hydropower firms and hospitals are found to have purchased such bills, according to the department, which is responsible for investigating and filing cases on revenue leakages and foreign exchange misappropriation.

According to the department, the purchasers of fake VAT bills use them not only to evade tax but also to claim refunds from the government. Thus, department officials find the purchasers more pernicious than those who sold such bills.

“A single firm has been found to have purchased bills quoting millions of rupees and by issuing such bills to evade the tax,” said Dirgha Raj Mainali, director general at the department. VAT is a consumer tax placed on goods and services wherever value is added at each stage of the supply chain. After the VAT Act was introduced in 1996 with the aim of bringing transactions of goods and services under the single taxation system, it was implemented in November 1997.

The department filed cases against 44 individuals on March 3 and June 21 on the charge of a revenue evasion totalling Rs4.73 billion after they were found to be involved in selling fake VAT bills.

The modus operandi of a recently busted racket was: making fake VAT bills and selling them to the interested firms, without selling any goods. For this, the firms issuing such bills would get commission up to five percent of the bill amount, according to officials at the department. They don’t need to open offices and invest capital for this purpose, according to an official.

This is the second time that large rackets of producing and selling fake VAT bills were busted. In an infamous scandal about a decade ago, the tax authorities had decided to collect Rs6.59 billion from 518 firms. The incident made national headlines due to the involvement of noted industrialists and businessmen. The busting of a scam bigger than the one a decade ago once again showed that the government’s measures to prevent recurrence of such incidents has been ineffective.

“Yes, we can say that the government has failed to stop recurrence of a similar scandal,” admitted Mainali.

He, however, added that the department was preparing to take strong legal action to discourage such tendency in the future.