| CRACKDOWN ON TAX FRAUD: Having uncovered an audacious organised fraud worth billions of baht, customs and excise authoritiesare now hot on the heels of the mysterious perpetrators |
Surat Jinakul and Rangsri Jinathongpradit
Bangkok Post, August 27, 2000
| Tax
agencies this week exposed a list of gangs that have allegedly cheated
the government's central fund out of around 400 million baht through
bogus Value Added Tax and export tax refund claims.
We have the names of 26 bogus export companies and their executives," said sources at the Customs, Excise and Revenue departments." "We also have the names of the tax officials who are involved in this network of cheating," the source added. The companies allegedly teamed up to cheat the government between 1994 to 1997. "The fraud was done systematically. This isn't the work of an individual company, as is usually the case," another official said. Legal proceedings have already been set in motion and executives of the concerned companies and corrupt tax officials will soon be brought to court. At the Customs Department alone, dozens of officials-including heads of sections-are under scrutiny. Several have been suspended. Those found guilty will be dismissed, and could be jailed for up to seven years. |
How
the tax fraud develops
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RAMPANT FRAUDCustoms, Revenue and Excise departments have jointly examined some 300 other companies on suspicion of tax fraud, according to official sources. The amount of money these companies have cheated the government out of in recent years runs into many billions of baht. "We already have enough evidence to prove that 120 of the companies cheated the government by filing faulty VAT refunds and export tax returns between 1998 and this year," an official told Perspective. On the evidence so far, the suspects have falsely claimed about 2,700 million baht in export tax refunds from the Customs Department and, prior to the exposure of their scam, were waiting for approval to cash the same amount again. "Fraud is rampant. There are huge networks of bogus companies," Director-General Somchainuek Engtrakul of the Customs Department admitted in an interview with Perspectivethis week.(Full interview on back page) PROSECUTION RAREFraud by both private and state companies is believed to cost the government billions of baht each year. Bribery of tax officials and falsification of documents is common. However, evidence is so difficult to come by that prosecution is rare. In an effort to boost the national economy and encourage exports, the government introduced the VAT refund claims system in 1991 and export tax refunds in 1997. Under the scheme, exporters may claim export tax refunds from the Customs Department for up to eight percent of the value of exported goods. Five percent of the value on the receipts is charged to the buyers and manufacturers who may use their receipts to claim back up to 10 percent of the value in the form of a refund from the Revenue Department. But ever since the introduction of these systems, tax agencies have been finding bogus firms suspected of having taken advantage of the scheme to cheat the government. In September 1996, for instance, the Revenue Department reported finding around 230 suspected cases of bogus firms whose claims cost the government some two billion baht in lost taxes. Nevertheless, no action was taken at the time. HOW TO DO ITThe various modus operandi for working the dodge includes opening a company for the sole purpose of selling tax invoices. Many firms demand extra invoices to offset against their VAT payments but very few of them are ever prosecuted. Another method is for manufacturers to register several firms in the VAT system. Each firm issues VAT invoices which are then used to claim tax refunds. Again, few arrests have ever been made. Aside from bogus firms submitting bogus claims, legitimate companies also use false documents to submit tax refund claims. A 1996 tax investigation found around 1,200 such cases, which cost the government about 1,200 million baht. In this case, the companies use falsified input tax invoices showing purchases at higher value than the actual sale. These are then used to support inflated VAT refund claims. Yet another trick is to register firms for the sole purpose of filing VAT refund claims without conducting any business at all. In 1992, the year after the VAT refund system was implemented, 73 such cases were suspected to have cheated the government out of 650 million baht. Again, if there have been any arrests made, they have not been made public. As such, the case of the 26 companies is seen as a breakthrough. ORGANISED CRIMEThe case is particularly interesting because the fraud was not committed by just one company but by several working in collusion, indicating organised crime. Tax offices have duly lodged complaints with the Economic Crime Suppression Bureau (ECSB) for criminal charges to be laid against the suspected companies and tax officials. Meanwhile, the Custom Department has set up several committees to question tax officials and assess whether to take disciplinary measures. Investigations have revealed that the 26 companies were registered as commercial trading and exporting companies at the Ministry of Commerce in 1994, stating their main business as the export of various goods. Nevertheless, very few if any of these companies ever did any actual trading, said the sources. Though they typically claimed to have exported textiles and ready-to-wear clothes to Singapore, all they actually did was submit fake export documents for Customs approval and use the documents to claim either VAT returns from the Revenue Department or export refunds from the Customs Department. EMPTY CONTAINERSCustoms investigators first learned from sources in Singapore that something was wrong with some of these Thai exports earlier this year. Some containers from Thailand delivered to one Singapore importer were found to be empty or containing only rubbish. Empty shipments such as these have been reported to Bangkok officials more than a few times, but the importers never file complaints. Instead they just approve the deliveries as normal. These empty containers were sent by several different Thai companies, but all were routed to the same Singapore address. According to Thai customs sources in Singapore, the destination address in Singapore is not of an office or warehouse but a small family residence. According to an inside source at the Customs Department in Bangkok, recent investigation found a large stove at the house which appeared to have been used to burn rubbish in the containers. HALF A BILLION TAX REFUNDThai tax agencies subsequently jointly screened files on the 26 companies and found that they had claimed to have exported a combined 6,700 million baht's worth of textiles and ready-to-wear clothes to the Singapore address between 1994 and 1997. Against this, the companies filed claims for some 479 million baht in VAT refunds. "As of this week, they have cashed nearly 370 million baht from the Revenue Department," according to a Revenue Department source. At the time the fraud was being committed, Revenue Department officials did not believe that all the documents were fake as they were properly stamped and verified by customs officials. Thus, they had no choice but to approve the refund claims. It was not until later that authorities found that no exports had actually occurred. Now the big question is how the authorities will prove that the exports were falsified. In the meantime no arrests will be made, according to inside sources. SHELL COMPANIESA few months ago, the Customs Department requested that the Revenue Department examine the tax payment records of the 26 companies. A thorough check revealed that none of the companies had ever paid any corporate or income tax. Revenue Department officials are now considering whether to file for tax evasion. Procedures require that they first summon executives of the company to demand retroactive tax payment. But when Customs Department investigators went to the registered addresses of the companies, mostly in the suburbs of Bangkok such as Minburi and Don Muang, all they found were empty offices. The search for the owners of the companies continues. MISSING PERSONSOne thing is clear though; the various company founders and executive board members are connected and frequently one and the same. For example, the founder of one company is also named as director or executive administrator of several other companies. Also, several of those registered as executives or founders may be nonexistent. For the time being, investigators are focusing their attention on tracking down the persons who visited the Customs and Revenue offices to process the tax claims. "These are real people. They exist. The police could track them down," said a source. MASTERMINDSNevertheless, this may only nab the front men, who officials firmly believe were probably working for more influential figures behind the scheme. "These people would not be able to carry off the scam without the support of more powerful people behind them, possibly influential politicians or corrupt military personnel," said a source. The source added that the Singapore connection could yield more evidence. However, no official request for cooperation has been submitted to Singaporean authorities. Insiders in the Customs Department are also being investigated. Although Somchainuk is unwilling to comment until the investigations are over, other sources in the department admit that involvement in the scam is extensive. Customs investigators submitted evidence to the ECSB a few weeks ago and criminal proceedings are likely to be started against officials and exporters soon. "Right now we're collecting and studying the evidence," a top ECSB executive confirmed. Meanwhile, a mountain of documents on the 26 companies is piling up at the Customs Department. |
Missing linksThe 26 companies whose top executives are wanted for questioning in connection with alleged fraudulent VAT and export tax refund claims:
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| TAX FRAUD: Customs Department officials strive to plug the loopholes that make export tax frauds possible |
Surath Jinakul,
Bangkok Post, August 27, 2000
| An all-out war
against tax fraud has been declared by the Customs Department, according
to Director-General Somchainuek Engtrakul.
To this end, the Customs Department has teamed up with the Revenue Department, the Excise Department and the police to crack down on tax cheats that cost the country billions of baht each year. "Several firms counterfeit export documents to claim export tax refunds. There are huge networks in and outside the country," Somchainuek recently told Perspective. For example, an influential major frozen shrimp exporter was caught cheating on export tax refunds two years ago. "The owner is well-known in social and political circles as well as in international trade. We had kept an eye on his firm for some time," the senior customs official said. Investigations revealed that the firm had cheated on the weight of the goods, which is the basis for calculating the tax return. The authorities found that the actual consignment comprised only a thin layer of shrimps sitting atop a thick bed of ice. The government introduced export tax refund claims in 1997 in a bid to stimulate exports. Under the scheme, exporters may claim export tax refunds from the Customs Department for up to eight percent of the value of exported goods. Then in 1991, the government introduced a VAT refund system with a view to boosting the economy. "This man not only claimed export refunds worth 100 million baht but also Value Added Tax (VAT) worth 300 million baht from the Revenue Department," according to Somchainuek. EXPENSIVE INVESTIGATIONSInvestigations into the export tax refund cheating have been lengthy and costly, according to Somchainuek. On many occasions, the investigations have had to be pursued outside the country, such as in the United States, Japan and Singapore. The mission against tax fraud began in earnest in 1997 when Somchainuek became director-general of the Revenue Department. "Our investigations went back to the period between 1993-1997. We found companies which claimed VAT refunds turned out to be located in someone's house or were registered by individuals who were nobodies. It gave us such a big headache," he says. One of the ways the scam works is that gangs sell fake tax receipts which they make themselves to unscrupulous business people who then use the receipts to claim VAT from the Revenue Department. Five percent of the value of goods shown on the fake receipts is charged against the buyers who use their receipts to claim back 10% of the VAT amount levied by the Revenue Department. INFLUENTIAL PROTECTIONThe Customs Department is presently pursuing 26 firms suspected of cheating the Revenue Department out of around 470 million baht in VAT refunds. (See main story on front page)"We have to drag out those behind the scenes even though they are protected by influential authorities," says Somchainuek. Local and international mafia have traditionally wielded immense influence over most Thai ports, though they have recently been uprooted, claims Somchainuek. Furthermore, Thailand's trade partners used to frequently complain about finding empty containers and containers filled with rubbish that originated in Thailand. Most of the suspicious containers were registered as having been carrying consignments of garments which, in turn, had negative repercussions on Thailand's overall export position as it put the country at a disadvantage when negotiating quotas. "But this part of the problem is no more," insists Somchainuek, suggesting that the job will be done once the murky deeds of the past are laid to rest.. TIGHTENING THE NETMeanwhile, the suppression campaign has been expanded to cover all regions of Thailand, particularly border areas where smuggling continues to be pervasive. In some cases, export documents have been issued for goods that never actually leave the country of origin. Most such consignments involve petrol, alcohol and cigarettes from neighbouring countries such as China and Vietnam. Overall, the Customs Department has been inundated with a heavy workload and numerous court cases are waiting to be resolved, including the shrimp case. "I feel very sorry for customs officials. The export volume is massive. They are told off when service is slow but they have to be thorough," says Somchainuek. He adds that the Customs Department is applying both suppression and prevention measures, including random checking of containers, which is how the shrimp fraud came to light. A new classification system applied to companies has also been something of a success. Honest firms, selected by export associations and approved by a Selection Committee which includes representatives of both local and international chambers of commerce and the Federation of Thai Industries, are given a "gold class" rating. The selected firms are then screened again by the Customs Department to ensure their suitability and trustworthiness. 'The idea is that these companies will keep an eye on one another and punish those who try to damage the system," explained Somchainuek. In addition, the department operates a local and overseas intelligence network. "We have links not only with neighbouring countries such as Singapore, but also places like the Middle East. We've recently worked closely with Iran and Israel. "With new companies, we jointly work to keep track of their movement. With the old ones, we have all their files and details on our computer network." There have been criticisms that the Customs Department and other investigators are dragging their feet as several pending cases await trial. However, Somchainuek denies this. "It is not true that we are withholding evidence. We will take immediate action as soon as our investigations are done," he declared. "Tax fraud can only be eradicated with the help of export firms and all concerned, he added. Companies can help by informing us about any irregularities. Corrupt authorities who help shipping staffers must be severely punished. |
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