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SCMP Reporter

The Inland Revenue Department (IRD) is dramatically toughening its stance on companies which file their tax returns late, imposing substantial penalties for missing the deadline by more than a few days.

  This policy will almost immediately affect a raft of companies with a December 31 year end, whose deadline for filing returns is the end of July.

   This includes most financial institutions and US multinationals operating in Hong Kong.

  But the impact of the new tough stand on late returns is already being felt in the corporate and professional sectors.

  Two clients of one 'big six' firm - both of whom had a November year-end - have been levied with 10 per cent penalties by the IRD for filing late returns.

  Deputy tax commissioner Sin Law Yuk-lin has confirmed the IRD was stepping up the imposition of its penalty regime on corporates who file late, incomplete returns, or do not submit them.

  'If they are not penalised for returns that are late or not submitted, we are effectively penalising those who are on time,' she said.

  Increased efficiency at the IRD was also allowing it to target more cases of late filing at the business and corporate level during 1996, she said.

  In previous years, the IRD had expressed its desire to escalate its enforcement of its penalty regime, but had not put it fully into effect.

  'We have the mechanisms to put our policy into effect this year,' she said.

  In general terms, the IRD plans to impose 10 per cent penalties in most cases where returns are filed late.

  The director of professional practices at the Hong Kong Society of Accountants, Winnie Cheung, said under Section 82A of the tax law, the IRD could theoretically levy penalties of up to 300 per cent on companies which filed returns late.

  From discussions the HKSA had held with the IRD, senior tax authorities had indicated they were under pressure from the Government's audit department to levy penalties for late lodgement of returns.

  A senior tax partner with Price Waterhouse, Rod Heung Lee, said two of his firms' clients with a November year-end had already been hit with penalties.

  He also said he had heard speculation that the IRD was imposing penalties if corporate returns were late unless they were in exceptional circumstances.

  He has called on the IRD to put out formal documents to outline exactly how its penalties policy has changed this year relative to previous years.

  A senior tax partner at KPMG, Lloyd Deverall, said it appeared the IRD was about to become 'an awful lot tougher' in terms of penalties, and that it was also not granting extensions to companies as readily.

  Mr Deverall said excuses considered legitimate in previous years in avoiding penalties - such as not having enough accounting staff to file a return on time - are likely to prove invalid this year.

TOUGH STAND IRD clamps down on tardy tax returns Companies which file late returns will be fined 10 per cent Financial institutions and US companies will be in the firing line 



Late tax returns will attract new penalties as IRD clamps down