Thousands of speculators avoid tax and penalties
More than 20,000 people identified as property speculators failed to report profits to the Inland Revenue Department over the past four years, but none of them have been penalised, prompting calls from legislators for tougher enforcement action.
Commissioner for Inland Revenue Chu Yam-yuen said theoretically these people had breached the law in not reporting their profits, but the department would only prosecute them if they ignored a tax bill.
'We would not specifically prosecute them for not informing us [about profits from flat sales],' Chu said. 'For one reason, the penalty for that is not very heavy, so our focus is not on that but on chasing back the tax money.' The department tracks speculators through a database of property transactions. Sales and purchases are analysed by a computer program based on factors such as how frequently a taxpayer is involved in flat transactions and how long he or she holds a property.
The 20,200 were sent tax bills based on their estimated profits but Chu said he did not have figures on the total amount or what proportion paid up.
The department has separate files on people who have been carrying on a long-term business as a speculator.
But he said that while the database identified people who had made profits trading in property it was difficult to define when a person was actually in business as a speculator.
'How many property transactions does one need to be involved in to be regarded as a speculator? There is no clear answer and it is not written in the law,' he said.
Under the Inland Revenue Ordinance, property speculators are normally deemed to be carrying on a business, and charged profits tax. They have to submit returns and pay tax for the profits made. For corporations, the profit tax is 16.5 per cent, while for unincorporated businesses - including individuals carrying on a business - the rate is 15 per cent.
Democratic Party legislator Lee Wing-tat expressed discontent with the department's practices, saying that it should educate the public to report such profits automatically.
'The department can include an extra document for people to report their property transactions when sending them their tax returns,' Lee said.
Accounting-sector legislator Paul Chan Mo-po said the department should be more proactive in forcing speculators to report their profits.
He suggested the introduction of a withholding tax, in which part of the transaction value would be withheld and remitted to the Inland Revenue Department when a deal was closed. Chan also proposed a fine on those who failed to report gains from flat sales.
Submission of an incorrect tax return without reasonable excuse is an offence carrying a fine of HK$10,000 and a further fine of treble the amount of tax which has been undercharged. The maximum penalty for submitting an incorrect tax return wilfully with intent to evade tax is a fine of HK$50,000 plus a further fine of treble the amount of tax undercharged and imprisonment for three years.