Responding to criticism that the Inland Revenue Department was delaying VAT (Value Added Tax) refunds, Commissioner General of IR Mahinda Medagoda yesterday said that they had been forced to take a series of measures to thwart fraudulent activities.

Addressing the media at the Information Department, Medagoda said that delays would be inevitable due to what he called recently introduced checking methods. Responding to The Island queries, Medagoda acknowledged that the Auditor General had recommended measures to curb illegal payments. He said that they had gone to the extent of visiting offices of those who had sought VAT refunds.

He emphasised that steps had been taken to minimise the possibility of any further fraud at the department. He said that had there been any suspicion regarding any VAT invoice submitted to the IR Department, inquiries would have to be made.

Auditor General S. Swarnajothi in his 2007 annual report to Parliament said that a special investigation on the management of government tax revenue had revealed a staggering fraud of Rs. 4.07 billion. Had it not been detected, VAT refunds would have passed 20 per cent of total revenue, he said, calling for a full investigation.

Megagoda said that payments could not be paid immediately due to time consuming inquiries. Medagoda and Mrs. Mallika Samarasekera, Deputy Commissioner in charge of the VAT section said that deficiencies in the applications seeking VAT refunds and disruption of work due to the LTTE attack on the Inland Revenue headquarters, too, had contributed to the delay.

Investigations conducted by the AGs Department and the Criminal Investigation Department revealed the complicity of senior officials in the VAT fraud.

Megagoda said that about 18,000 VAT claims were pending since 2005 though about 65 per cent of them would not require further action. Mrs. Samarasekera expressed confidence that they could finalise inquiries soon.

The IR Chief said that regarding following revelations by parliamentary watchdog committees of waste, corruption and irregularities in the public sector in the past few years, relevant departments had taken counter measures. The explosive COPE report on the privatisation of the tax paying Lanka Marine Services Limited (LMSL) led the Supreme Court to find fault with Treasury Chief Dr. P. B. Jayasundera.

Medagoda said that as part of the overall plan to increase government tax revenue, financial ‘incentives’ and rewards received by public servants, too, would be taxed. He said that Customs officers and Inland Revenue employees would be among the public sector affected by this decision. He emphasised that this should not be considered a tax on public servants’ salaries.

He said now that the war had been brought to an end, action would be taken to strengthen their Jaffna office, though there was no immediate plan to tax people. He said that they had collected Rs. 40 million in Jaffna and over Rs. 205 million in the East during the 2007-2008 period. Once the economy expanded in the northern and eastern provinces, revenue collection would naturally go up, he said.

He acknowledged that they would not be able to take over the Inland Revenue building now undergoing repairs though the original plan was to move in on January 1, 2010. The LTTE attack last February had caused severe damage to the building, particularly its 12th floor.

He expressed confidence that the State Engineering Corporation would be able to complete the task by next March. He said that the estimated cost of the project was Rs. 1041 million.