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SCMP Reporter

PEOPLE who fail to keep proper business records will face fines of up to $100,000 under drastically revamped measures to fight tax evasion.

The Commissioner for Inland Revenue, Anthony Au Yeung Fu, yesterday said the existing penalty of $5,000 was in need of urgent revision to reflect the seriousness of the offence.

Mr Au Yeung said it was difficult to estimate how much revenue was being lost because of inadequate record keeping.

 However, he said the scale of the problem was shown by the fact that in the last tax year almost $1 billion was known to have been under-reported.

Last week, Financial Secretary Sir Hamish Macleod, described as 'alarming and unacceptable' the apparent extent of lax book-keeping. He was referring to a survey which showed that 40 per cent of firms were not keeping sufficient records for profits to be readily ascertained.

Mr Au Yeung said it was imperative records were kept 'manually, mechanically or electronically' to ensure proper assessment.

'Under the proposals, it will be clearly stated what records the taxpayer must keep, so the situation will be clarified,' he said.

'The present law does not spell out clearly enough what a person must keep. We will be proposing minimum requirements, so there will be no question.

'I presume tax evasion will continue no matter what steps we take but, on the other hand, we are going to tighten the law for tax-payers to keep proper records.' Mr Au Yeung revealed that last year, the largest single case of under-reporting in tax was $100 million - $20 million was recouped in fines and penalties. He refused to specify the offender's identity or profession.

Mr Au Yeung said increases in the amount of tax avoidance in recent years had encouraged the need for greater field auditing.

In the past three years, the department has investigated more than 3,500 cases and taken back $2.7 billion in unpaid taxes.

This year, an extra audit squad will be formed, bringing the total to eight.

  Under current legislation, people who fail to pay tax can be penalised up to three times the missing amount, depending on the severity of the offence.

In extreme cases, fines of up to $10,000 for each charge may be recommended and, upon conviction in court, wilful acts carry a maximum penalty of three years imprisonment.

Mr Au Yeung said a tougher enforcement attitude would prevail in the future with greater potential for taking cases to court.

'We have quite a few cases lining up,' he said.

Deloitte Touche Tohmatsu partner Michael Ainslie said the tougher measures appeared sensible and were indicative of the tax system moving to greater self-assessment.

'Documentation is fundamental to proper tax enforcement and is the basic responsibility of all taxpayers,' he said.

'This is a fairly narrow issue but, in fairness, all revenue authorities face this kind of problem all over the world.' Mr Ainslie said it did not seem clear whether Mr Au Yeung wanted to preserve the new record keeping measures for incorporated companies - which are already subject to auditing - or focus them selectively on small firms and branches of international companies.



Tough new fines to block tax dodgers