IRC to clampdown on Mano-style tax evasion
The Internal Revenue Commission is cracking down on
tax evasion by senior executives who divert their salary payments
through ‘associated or related’ companies in order to avoid paying
taxes.
According to the IRC, such arrangements are “prevalent in many industries operating in the country”.
PNGi first alerted its readers to the
existence of such scams in June 2017, when we exposed how the Managing
Director of the Mineral Resource Development Corporation (MRDC),
Augustine Mano, was using a company he owns to evade tax on his salary
and benefits.
The MRDC is a State owned
entity that manages landowner equity interests in mining and petroleum
projects on behalf of landowner companies. Augustine Mano has been the
Managing Director since March 2008.
In his report for 2009, the Auditor General revealed Augustine Mano was avoiding paying any income tax on 80% of his K750,000 a year salary package.
According to the Auditor
General, rather than being directly employed by MRDC, a “Professional
Services Agreement” had been signed between MRDC and Augustine Mano as
the “Incumbent Professional” of SMA Investment Limited.
Under the agreement, MRDC was only paying Mano K150,000 as his direct salary while K600,000 was being paid to SMA Investment Limited. SMA is a company set up and owned by Mano.
This arrangement meant Mano
was only paying income tax on K150,000, not K750,000. With a top rate of
tax at 42%, this was potentially saving Mano, and defrauding the State,
of K252,000 every year.
The Auditor General was scathing:
A managing director or
director of a company is always a natural person. The Managing Director
of MRDC is an employee of MRDC. All benefits of any employees are
classed as salary and wages and must be taxed according to the tax rules
applicable. The current arrangement of the Managing Director can be
viewed as a measure to reduce or evade tax.
The Auditor warned “there
are penalties for both the employer and employee pursuant to Section 361
of the Income Tax Act, 1959. Such a scenario can lead to undesirable
consequences for both parties”.
Despite these cautions, in later audits the Auditor General found the practice was still continuing.
PNGi reported the Auditor General’s findings on the situation at the MRDC to the IRC and, its seems, they
have taken the matter seriously. Their investigations have revealed Mr
Mano is not the only senior executive, and MRDC is not the only company,
using such schemes.
News that the IRC is cracking down on these tax evasion schemes is very welcome. They are not just a
way for the wealthy to avoid paying their fair share; they also deprive
the government of much needed revenue for health, education and other
services; they create greater inequality; and, they put a larger and
unfair tax burden on low and middle-income earners, while the privileged
grow ever more wealthy.
But while we applaud the IRC for its
crackdown, we must also question why those who have been unlawfully
evading hundreds of thousands of kina in taxes are not being criminally
prosecuted. Ordinary people who are accused of much lesser crimes do not
receive such favourable treatment and are publicly dragged through the
courts for offences as minor as shoplifting. Why should companies and
individuals who have been defrauding the State not receive similar
treatment?
Very interesting,obviously pay officers and managers colluding to let this practice acceptable.We loose almost half of our salary and benefits through taxes whilst such so called greedy CEOs up the rank walk away in their dirty Scam's.This person needs to be investigated asap and prosecuted.
ReplyDelete