TO ensure proper collection of customs, VAT, excise duties and income tax, detection of ghost businesses is a must. Ghost businesses mean companies that do not exist or exist on paper only. If one asks any of one's nearest friends who is involved in export and import businesses in Bangladesh, one may hear that he has more than single importer's registration certificate (IRC). That means almost every trader in Bangladesh maintains more than one IRC. But why? The answer is simple-to avoid either income tax or customs duty or value added tax (VAT). In one case, a major Dhaka-based company obtained three business identification numbers (BIN) against three separate companies using three different addresses. How can one prove that those companies are inter-related and carried on business separately to show less annual turn-over and less net income in order to evade or avoid paying income tax or other government dues. In order to investigate such type of unique cases, the investigator needs to analyse those companies inter-bank transactions, movement of consignment after clearing from Customs point or thorough analysis of all related companies' books of accounts. This type of investigation needs a lot of manhour, expertise and commitment. The Revenue Department is facing an acute shortage of trained direct recruited Customs and Income Tax Inspectors due to an injunction by the High Court on recruitment of fresh inspectors through the Public Service Commission (PSC). In the injunction order, the High Court Division has directed the National Board of Revenue (NBR) not to recruit any inspector excepting from freedom fighter candidates who are waiting for absorption. For that reason, the NBR since long has not been able to recruit any single inspector through the PSC. Almost 85 per cent of customs inspectors at field level are either promotes or absorbed as Mojeeb Nagar employees. As an investigator, an officer should have sufficient knowledge not only in service related laws like customs law, VAT law and rules, income tax law, import and export policy, but also needs to know about banking transaction procedures, book keeping and accounting system, GATT valuation, international business practices and method of business transactions and sound knowledge on the audit system.
In customs, excise VAT and income tax departments, basic revenue officers are inspectors. They work at the grassroot level and are responsible for carrying out all types of revenue collection related activities. Specially the customs officials, standing at the contact points of international exchange of goods, people and cultures, play an important role in such matters as collecting customs duties, issuing clearance of imported goods and export goods, inspection of travelers' baggages, control of foreign trading vessels and firearms, and seizure of pirated, prohibited and restricted articles etc. To discharge these functions of the customs properly and smoothly, the ability and the quality of each customs official is the key factor. But, at present, the NBR is facing a serious shortage of quality customs officials specially at the inspectors' level. For this reason, detection of ghost businesses and stopping malpractices have become more difficult.
Dr. Rashid Ul Ahsan Chowdhury in his Article captioned "How to detect ghost business?", published in The Financial Express on February 28, rightly pointed out that fraudsters always attempt to register many ghost companies simultaneously in different VAT offices. Let's take a real life example. An exporter in Dhaka at first manages a VAT registration number and tax identification number (TIN) in his name showing one address. Then he obtained another VAT registration number and TIN number showing a different father's name and different address while keeping his own name unchanged. He also used different company names at different addresses. Surprisingly, the same person showing different addresses and different father's name obtained all necessary licenses to do business. After investigation, it has been revealed that the above mentioned fraudster engaged in international heroin smuggling.
From the above example, we can realise that ghost businesses registered with TIN and VAT registration numbers not only cause revenue losses but also damage the image of the country in an era of growing international trade. As it is identified by the UK and other EU countries that Bangladesh is being used as a drug transit route, the countries are now treating Bangladesh export consignments at high risk category. For some dishonest fraudsters, our genuine exporters are facing problem in conducting their fair businesses. Considering this, the National Board of Revenue (NBR) should give special attention to identification, checking and elimination of ghost businesses having multiple TIN and VAT registration numbers. In order to do so, the NBR has already created several legal provisions. Using these legal provisions, revenue officials can easily identify fraudsters. As per the SRO No.-162-law/2004/408-MUSAK, dated-10/06/04 and VAT rules 11(Kha), the NBR introduced New Musak form (6 Kha) for commercial importers. According to this rule, each commercial importer needs to renew his VAT registration certificate after one year. When the importer will submit his application for the renewal he needs to furnish his past transaction record to the VAT authorities. The VAT authorities will verify it and then will renew his license. A question may be: what will happen in case of a commercial importer's VAT registration certificate which was issued before 2004. Let's see what is happening in the practical field. An importer of a definite name and of a certain address got a VAT Registration number in 2003. He has been importing commercial goods through ICD, Kamlapur, but has not renewed his VAT licenses yet. After inspection, it is found that no importer of his given name does exist in his given address. Surprisingly, all of his import is high value cosmetics item and he never opened any letter of credit. He purchased goods from Dubai and paid money directly. At the clearance point, he submitted self-made commercial invoice, and for one container of goods the importer showed two bills of lading and submitted two bills of entry of the same date. Although his invoice prices were low for the two bills of entry, but on the basis of investigation and verification of imported goods it was found that actual assessable value should be several folds higher for above mentioned two bills of entry. The question is -- if we go for further investigation regarding other related matters such as (i) How did he pay the huge amount of US dollar without using banking channel? (ii) How much income tax is paid by him? (iii) What are his other business activities? It will be a very difficult task for an investigator because in this case the importer used non-renewed VAT registration number and a fake address.
For this reason VAT authorities should address full effort on implementation of VAT Rules 11(Kha). Because, full enforcement of Rule 11 (Kha) will establish the authenticity of only renewed commercial importer's VAT registration certificate and will automatically eliminate others. At the same time, the VAT authorities need to investigate regarding the genuineness of all submitted documents by an applicant and also applicant's present and permanent address. According to the present legal provision, the VAT authorities are bound to carry out investigation in order to check and verify the genuineness of all applicants' addresses and related documents within 15 days of issuance of VAT certificates. But in practice it is not done. That's why fraudsters have their avenues open to do illegal business. The National Board of Revenue should look into this matter urgently. Otherwise, we will not only lose revenue but also damage our country's image in the arena of international trade.
The VAT Rules 11 (kha) is applicable only for the commercial importers. But in order to detect and eliminate fraudsters companies, this rule needs to be amended and made applicable to also commercial exporters, auctioneers, clearing and forwarding agents and freight forwarders. Besides, particulars which a commercial importer needs to submit during renewal of his VAT registration certificate are not sufficient for the follow-up investigation. At present, a commercial importer needs to fill up Musak 6-(kha) form. This form contains only the following information: name of organisation or individual, type of organisation, name of corporate or group (if applicable), business address, head office address (if any), VAT registration number, registration date, renewal up to (if previously renewed), type of registration, TIN number, other information (trade licence no. and importer reg. no., renewed up to ............), business information (of last 3 fiscal years), change of any information given at the time of registration.
On looking carefully at the above mentioned information which an importer needs to furnish at renewal time to the VAT authorities, one will feel that these are inadequate. Some other related information, which an investigator needs for a careful investigation in order to identify the real importer in any fraud case should also be furnished in the said Musak form 6-kha in a more exhaustive way.
It is, therefore, clear that in order to identify fraudulent companies and traders, it is a must to have all relevant particulars in the Musak form 6-kha and the customs rules 11-kha should be amended requiring renewal of registration certificate of commercial exporters, auctioneers, C&F agents and freight forwarders. The VAT authorities should take immediate step to check, verify and identify the genuine VAT registration numbers and genuine businesses and permanent addresses of businessmen of the aforesaid categories. The suggested plan of action will help eliminate ghost companies and at the same time establish a level playing field for genuine companies.
The writer is Director incharge of Customs Intelligence and Investigation Wing of the Bangladesh Customs, Dhaka. Views expressed in the article are his own