Police investigators working on a pair of routine tax-related fraud case have stumbled upon evidence of widespread tax evasion that has government officials worried.
"What started as a routine tax inspection has revealed a broad organization of fake receipts and fictitious exports," announced Finance Minister Sumer Oral earlier this week.
The announcement came after the second major fictitious export scam in the past two months was uncovered by the fraud squad in the western province of Izmir.
More than 20 people were taken into custody in Operation Whale, including businessmen, former municipality officials and accountants.
The operation comes on the heels of Operation Parachute, in which police uncovered a similar export scam. Police have begun probing a possible link between the two scams, which centered in the northeastern city of Artvin and the southeastern Gaziantep Province.
Both cases reportedly involved questionable business figures sending cloth scraps abroad instead of real cloth, in order to receive tax breaks from the state. Also in both, state officials or civil servants cooperated with businessmen to cheat the state of trillions of lira.
While police investigators made their major break in the case only in recent weeks, months earlier they apparently already believed they were on to something much bigger than routine tax fraud. According to confidential sources, in March, the finance ministry instructed local administrations to stop paying value-added tax (VAT) breaks to certain companies. Orders for holds on property were issued to secure TL 11 trillion in state claims from these companies.
A Finance Ministry official said the VAT break system is a reasonable one only if it can be implemented properly. “We actually have a tight control mechanism. But when one of the gears in the organization fails, it takes time to spot it. In this case it was a certified public accountant who betrayed the control mechanism,” he said Among persons implicated in the investigations were businessman Yasin Altinbas, Customs Undersecretary Ramazan Uludag, businessman Mehmet Niyazoglu, and ex-municipal secretary Galip Halici. Senior military officials were also implicated, including Kilis Gendarmerie Regiment Commander Toksal Keskin, who along with his wife, have been questioned.
According to a report by the Istanbul Customs Directorate, released independently of the police investigations, fictitious exports are a result of Turkey abandoning import substitution in favor of export incentives. These incentives include VAT breaks, customs exemptions, and export loans, which if not properly overseen, can quickly become tools for fraudulent dealings, the report stated.
Experts estimate the amount of fictitious exports during 1984-1988 at around $1 billion a year.
The incentive system works only if it properly monitored in order to prevent abuses, according to finance ministry officials. "We actually have a tight control mechanism but when one of the gears in the organization fails, it takes time to spot it. In this case it was certified public accountants that betrayed the control mechanism," one official said.
"We have to design measures to prevent such abuse," the official said. "But we have to do it without putting a burden on exporters at a time when exports are under pressure. Still, I believe the size of the fraud is not as large as reported by the media."
News reports suggested that the state lost TL 150 trillion ($1.5 billion) in VAT this year alone, through various types of scams.
In many of the scams, exporters declare to Customs that they are sending "furniture," "textiles" or "shoes", for which the exporter receives tax breaks, when really their cargo is worthless goods, according to police.
In one recent instance, police seized documents from the companies implicated in the fictitious exports of textile products to 11 countries. The documents showed that "not a single penny has arrived in Turkey from the importers of these goods," Izmir Police Chief Hasan Yucesan said. "There has been no shipment; it's a hoax," he said.
"The figure is growing, and it will continue to do so," Yucesan added. "What should actually be done is to rewrite export regulations. Trillions of lira have been guzzled through abusing export legislation, and these figures could grow," he said.
A problem cited in the Customs Directorate report was the outdated legislation on the basis of which arrests are made. The Anti-smuggling Law No. 1918 was passed in 1932. "Only 10 percent of cases result in arrests," the report said.
The report, claiming that customs should not be held responsible for any corruption involved in foreign trade, suggests that Turkey should investigate whether export incentives such as VAT breaks actually increase exports. "Despite substantial increase in export incentives in recent years, State Institute of Statistics (DIE) and Foreign Trade Undersecretariat data show that exports are stalled. These VAT breaks that do
not increase exports are connected to fictitious exports. Dismissing a few officers in such cases is a superficial solution," the report said.
Police were in general keeping tight-lipped about the investigations, so as not to jeopardize their attempt to uncover additional details of the alleged wrongdoing. Leaks to the press had already led to the destruction of some criminal evidence, according to Yucesan. –(Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)
