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SCMP Reporter

Evasion GREATER auditing of the self-employed - from hawkers to barristers - is planned in a crackdown.

  The Financial Secretary has also pledged to bring forward legislation to clarify book-keeping and records requirements.

  Sir Hamish said it was essential all business transactions could be traced so effective attacks could be mounted against the under-reporting of incomes.

  He described as 'alarming and unacceptable' a survey of firms revealing a widespread practice of inadequate record-keeping.

  Of the 4,500 businesses surveyed:   60 per cent did not issue receipts or only issued them on request;  45 per cent kept full sets of books and accounts; and  40 per cent did not keep sufficient records to enable their taxable profits to be readily ascertained.

  Sir Hamish said new requirements would deter under-reporting and make it easier for tax inspectors to uncover transgressions.

  But tax experts highlighted the Budget's back-pedalling on service companies, saying the Government's claims last year of rampant abuses had been shown to be unwarranted.

  Although legislation will be introduced to clarify employee-employer relationships, it was announced new guidelines would be issued on management fee payments.

  Deloitte Touche Tohmatsu partner Michael Ainslie predicted the legislation would seek to better define the status of employees; making it more difficult for workers to shroud their true identities.

  Mr Ainslie said it appeared the Government had finally realised most service companies were used legitimately.

  'The reason we don't have legislation today is that, after 12 months, they have found that most service companies are legitimate,' he said.

  'I believe there is scope to look at a specific definition for 'employee'.'   Price Waterhouse partner Rod Houng-Lee agreed the initial furore over service companies had been inflated - adding he did not believe many firms would tolerate sham arrangements.

  'He has finally worked it out,' he said.

  'This whole issue has been a gigantic storm in a teacup.

  'The 'disguised' employer-employee relationship is a sham, so to say he needs new legislation to deal with a sham is really ridiculous.'   In the past three years, the Inland Revenue Department's investigation and field audit teams have investigated more than 3,500 cases, recouping $2.7 billion in unpaid taxes and penalties.

  Another team will be created, bringing the total to eight.

  Ernst & Young senior partner on tax, Thomas Lee, said the Budget should have specified which professions would be targeted.

  'Some people may be unaware they have been pinpointed or that they are doing anything wrong,' he said.

  Mr Lee also said penalties for tax evasion were inadequate and needed to be bolstered.

  At present, taxation-related offences carry $5,000 fines.



Greater scrutiny of book-keeping by slf-employed