Audits are conducted after refunds and are mandatory in the case of three consecutive refunds, he added. Deputy finance minister Ranjith Siyambalapitiya said the Criminal Investigations Department had handed over the case to the Attorney-General for charges to be filed.
Nine suspects, including the ring-leaders, remain at large.
They are believed to have fled abroad but action is being taken through Interpol to find them, Siyambalapitiya told a news conference.
The assets of the suspects acquired through the fraud, believed to be the largest the island has seen, had been frozen. Two of the suspects under arrest were deputy tax commissioners.
The authorities had taken action to prevent further irregularities in tax refunds.
We do not want to protect anybody and will punish all those responsible for the fraud, Siyambalapitiya said.
Commissioner General of Inland Revenue A.A. Wijepala said the amount of money defrauded by the suspects was 3.5 billion rupees.