Government Blocks Imports and Exports for Taxpayers Failing to File VAT Returns and Clear Tax Arrears

The government has begun halting the imports and exports of taxpayers who fail to file their VAT returns on time or settle outstanding tax arrears.

The Department of Customs started taking action against the non-filers following a decision to this effect taken by the heads of the Inland Revenue Department (IRD), Revenue Investigation Department, and Department of Customs on December 8. The meeting resolved to block the imports and exports of such taxpayers. The details obtained by New Business Age confirms that the IRD requested the Department of Customs to enforce this decision. This step comes as the government struggles to meet its revenue collection targets.   

Despite VAT being collected from consumers, the rate of non-filers has surged in recent years due to delays in submitting returns and paying taxes. According to the IRD, the percentage of VAT non-filers rose from 10.65% in Fiscal Year (FY) 2020/21 to 37.53% in FY 2022/23, before declining slightly to 27.95% in FY 2023/24.

Harisharan Pudasaini, director general of the Department of Customs, stated that monitoring of non-filers has intensified. "Non-filers are widespread, and we are monitoring them closely. Not all taxpayers can evade the system, which is why we have been implementing the decision from December 8," Pudasaini said.

Officials at the IRD confirmed that circulars have been issued to relevant authorities to effectively block imports and exports for non-filers and taxpayers with VAT arrears. A senior IRD official highlighted the urgency, saying, "Government expenditure is rising, but revenue collection is falling short. We need to take strict action against non-filers and defaulters."

The problem of tax arrears has also worsened. By the end of FY 2023/24, outstanding arrears, including interest, additional fees, and penalties, reached Rs 130.24 billion—an increase of Rs 17.16 billion compared to Rs 113.08 billion in FY 2022/23.