Tax eva­sion in fuel in­dus­try and how to bring back san­ity

Chronicle (Zimbabwe) - - Business - Chris Ndlovu

THE Gov­ern­ment is be­ing held at ran­som by il­le­gal fuel deal­ers who ap­ply all avail­able meth­ods to evade taxes on im­ported fuel.

This has ad­verse ef­fects in the gen­eral func­tion­ing of the econ­omy as smug­gled fuel only ben­e­fits the few barons and their col­leagues. The ef­fect on the eco­nomic chain is so dis­as­trous yet only a few re­alise it.

Fuel smug­glers di­lute im­ported fuel with other fu­els that are duty free, for ex­am­ple paraf­fin and Jet A1 fuel, fur­ther de­priv­ing the Gov­ern­ment in due taxes along the line.

It is high time the Gov­ern­ment im­ple­mented a fuel mark­ing sys­tem to con­trol this mad­ness in the econ­omy. Di­luted fuel fur­ther dam­ages ve­hi­cle en­gines with un­fore­see­able fu­ture ex­penses in re­pairs. This is an un­nec­es­sary ex­pense to un­sus­pect­ing con­sumers. Funds that are sup­posed to be ear­marked for other devel­op­ment projects are in­di­rectly di­verted to re­pairs and spares. This has to stop.

The fuel mark­ing pro­gramme will help the Gov­ern­ment re­cover ex­cise taxes, re­duce sub­sidy abuse and pro­tect the en­vi­ron­ment with cleaner and more ef­fi­cient fu­els. Fuel fraud is a se­ri­ous world­wide prob­lem, steal­ing hun­dreds of mil­lions of dol­lars from gov­ern­ments and the pro­grammes that serve their peo­ple. Fuel fraud most com­monly oc­curs through tax eva­sion, when crim­i­nals di­lute tax­able fu­els, sell them at the full tax­able rate and pocket the dif­fer­ence. Not only does this prac­tice de­prive gov­ern­ments of tax rev­enue, it of­ten de­grades the qual­ity of the af­fected fuel, harm­ing equip­ment and the en­vi­ron­ment.

Fuel fraud also oc­curs through sub­sidy abuse when sub­sidised fu­els are di­verted from their in­tended ben­e­fi­cia­ries and used to di­lute tax­able fuel sup­plies. This com­pounds the dam­age of fuel fraud as money spent by gov­ern­ments for these sub­sidised prod­ucts does not de­liver its in­tended ben­e­fit to pro­grammes such as fuel sub­si­dies for cook­ing af­ford­able home light­ing, or eco­nomic devel­op­ment pro­grammes for farm­ing and fish­ing, but in­stead con­trib­ute to the il­licit prof­its of crim­i­nals.

Price dif­fer­ences caused by tax and sub­sidy pro­grammes be­tween neigh­bour­ing coun­tries cre­ate an in­cen­tive for crim­i­nals to smug­gle fu­els across bor­ders in or­der to take ad­van­tage of the ar­bi­trage. The coun­try needs to em­brace a fuel mark­ing pro­gramme that de­liv­ers a com­pre­hen­sive so­lu­tion to com­bat fuel fraud.

This re­quires a sys­tem that can mark the var­i­ous taxed and sub­sidised fu­els so that they can be mon­i­tored as they move through your sup­ply chain. Fuel mov­ing through bor­ders can be tested on­site to pre­vent smug­gling, and re­tail out­lets can be tested to show if taxed fuel has been di­luted. Re­sults can be pro­duced in just min­utes, de­tect­ing di­lu­tion or even trace amounts of adul­ter­ation.

Mark­ing pro­grammes en­able gov­ern­ments to take a stand against fuel tax eva­sion and sub­sidy abuse to ben­e­fit their cit­i­zens, their econ­omy and their en­vi­ron­ment while bring­ing jobs, lead­ing tech­nolo­gies and best prac­tices to their coun­try.

These can au­dit and trace all pre­vi­ously sold fu­els, help the tax rev­enue col­lec­tor cal­cu­late all lost tax rev­enue by the il­le­gal fuel deal­ers. By the use of open data sources, an­a­lyt­ics in­ves­ti­ga­tion tools will un­cover the scam in a few days.

There is al­ways one mis­take a crim­i­nal does when com­mit­ting a crime, that’s leav­ing be­hind foren­sic ev­i­dence, ei­ther by neg­li­gence or ig­no­rance. There is so much struc­tured data sources to work from to help gov­ern­ments re­cover all due taxes from the sale of the il­le­gal fuel dat­ing back to which ever date the tax rev­enue col­lec­tor sees fit.

The out­put of fuel in­tegrity pro­grammes must al­low a state to ef­fect changes in busi­ness re­la­tion­ships, im­pose fi­nan­cial penal­ties and legally pros­e­cute vi­o­la­tors. To en­able en­force­ment, the pro­gramme op­er­a­tions must be per­formed with the high­est level of in­tegrity, en­sur­ing the chain of cus­tody for fuel sam­ples, and pro­vid­ing valid and ac­cu­rate test re­sults. Ef­fec­tive fuel in­tegrity pro­grammes will pre­scribe an es­ca­lat­ing path of suc­ces­sively more se­vere de­ter­rent ac­tions for au­thor­i­ties to fol­low. If com­pli­ance is not achieved ini­tially, the next more se­vere ac­tion is taken. Sev­eral de­ter­rent ac­tions not re­quir­ing le­gal pro­ceed­ings could be in­cluded in this path. While a suc­cess­ful in­tegrity pro­gramme will re­duce the avail­abil­ity of il­licit fuel in a coun­try as well as de­mand for it, a cer­tain level of or­gan­ised crim­i­nal ac­tiv­ity will al­ways re­main and seek new op­por­tu­ni­ties for fuel fraud. To af­fect this layer of crim­i­nal ac­tiv­ity, lo­cal laws, pol­i­tics, in­fra­struc­ture, the char­ac­ter of the work­force and sev­eral other fac­tors should be taken into ac­count when defin­ing the en­force­ment model best suited to a par­tic­u­lar fuel in­tegrity pro­gram.

That’s where an­a­lyt­ics in­ves­ti­ga­tion tools come into play to help the pros­e­cu­tion au­thor­ity with valid ev­i­dence be­yond any rea­son­able doubt.

The cost to a gov­ern­ment of an ef­fec­tive fuel in­tegrity pro­gramme is quickly re­cov­ered. Fuel tax eva­sion fraud is re­duced, in­creas­ing the tax rev­enues col­lected by the gov­ern­ment. Fuel sub­sidy abuse and over­all sub­sidy spend­ing are min­imised, en­sur­ing the in­tended re­cip­i­ents ben­e­fit and pro­vid­ing ad­di­tional gov­ern­ment funds for other ser­vices to ben­e­fit the coun­try. De­pend­ing on the com­plex­ity of the im­ple­men­ta­tion, fi­nan­cial ben­e­fits to the gov­ern­ment will def­i­nitely be­gin ac­cru­ing dur­ing the first year. By the sec­ond year, the pro­gramme will not only be self-fund­ing but will have achieved a size­able re­turn on in­vest­ment.

To re­cover ex­cise tax rev­enue lost to fuel fraud, a fuel in­tegrity pro­gramme is a wise in­vest­ment no mat­ter the an­nual fuel vol­umes or amount of tax levied. The Gov­ern­ment has lost bil­lions of dol­lars in un­paid taxes ver­sus the amount of fuel im­ported into the coun­try. We need to re­cover these funds as a coun­try and the tech­nol­ogy to do so is lo­cally avail­able.

Ev­ery day when they fill their gas tanks, cit­i­zens will ex­pe­ri­ence first­hand the ef­fec­tive­ness of their Gov­ern­ment and ef­fi­ciency of the econ­omy. For­eign in­vest­ment and eco­nomic growth will be en­cour­aged as busi­nesses, fac­to­ries, farm­ers and all as­pects of so­ci­ety will have greater trust in the fuel sup­ply. The eco­nomic growth re­sult­ing from a fuel in­tegrity pro­gramme will ben­e­fit law abid­ing cit­i­zens — not crim­i­nals — adding to the pros­per­ity and sta­bil­ity of the coun­try.

Chris Ndlovu is a spe­cial­ist in Gov­ern­ment ICT mon­i­tor­ing sys­tems & Crit­i­cal Pub­lic In­fra­struc­ture Pro­tec­tion Gov­ern­ment Busi­ness. He is the man­ag­ing di­rec­tor of Duodec­i­mar Tech­nolo­gies PL and writes in his per­sonal ca­pac­ity. Feed­back on 0776 574 356: email duodec­i­martech­nolo­gies@gmail.com

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