Rise in personal bank account use for tax evasion, reports NRB

KATHMANDU: The trend of using personal bank accounts for business transactions to evade taxes is increasing in the country, as evidenced by the number of such cases reported to the Financial Intelligence Unit (FIU-Nepal), according to the Nepal Rastra Bank (NRB).

In the annual report of FIU-Nepal released on Tuesday, the central bank stated that personal bank accounts, rather than business and institutional bank accounts, were being used to evade tax.

The report found that 37% of suspicious transaction reports received from January 2020 to December 2022 were related to suspicions of tax evasion through the use of personal bank accounts for business transactions. On average, FIU-Nepal received 65 such suspicious transactions monthly during this period.

According to the central bank, 48% of such business transactions were linked with proprietorship businesses, 33% with private limited companies, and the registration status of 19% of such firms remained unknown.

"The nature of the businesses involved includes trading, manufacturing, hotels and restaurants, travel, and medical, among others. Multiple personal accounts were found to be used for transactions for a single business. For such transactions, the personal accounts of the proprietor or shareholder are used in most cases. Others involved were family members and employees," the report revealed.

FIU-Nepal analysed 204 such cases, and 113 were disseminated to the Department of Revenue Investigation and Inland Revenue Department for further investigation. "Based on disseminated cases, the involved suspicious amount is approximately Rs 12 billion annually," it stated.

The report recommended that all stakeholders play an active role in harmonising the nature of business and the type of account used for related transactions.

Customers are advised to be aware of the types of accounts and their purpose at the time of customer onboarding and regularly, while business firms and companies need to be made aware of the use of the firm’s or company’s account while conducting business-related transactions.

Regulators have been urged to impose fines and penalties on the use of personal savings accounts for business-related transactions. The use of personal bank accounts for business-related transactions should be discouraged through directives.

Furthermore, investigating agencies are advised to include the personal accounts of shareholders, promoters, proprietors, key staff, and their close associates while undergoing tax assessment or any other kind of investigation.