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SCMP Reporter

The Inland Revenue Department's (IRD) efforts to intensify a crackdown on tax evaders appear to have paid off, with assessment of back tax and penalties rising more than 50 times since 1991.

According to figures from the IRD, the Field Audit Group's collection of back tax and penalties revenue was HK$1.29 billion in the assessment year 1999-2000, sharply up from HK$22 million in 1991-92.

The back tax and penalties revenues also grew 58 per cent from 1997-98, when Hong Kong was in the midst of an economic crisis.

Alice Lau Mak Yee-ming, acting deputy commissioner of Inland Revenue, said the IRD had become more vigilant.

'On April 1, the Field Audit Group was merged with the Investigation Unit . . . as part of the IRD's 'Enhanced Productivity Programme' with a view to enhancing efficiency and flexibility,' Ms Lau said.

Since the merger of the two units, the group had been working towards the common goal of catching tax evaders, she said. The number of professional staff in the tax audit teams had increased to 91 this year, from 28 in 1991, when the Field Audit Group was established.

The back tax and penalties assessed had also risen sharply to HK$14.2 million from HK$800,000 over the same period.

Tax consultants said that apart from the aim of increasing tax revenue, the Field Audit team had been strengthened as the IRD was planning to launch a self-assessment tax system in five to eight years.

Self-assessment tax systems are used in the United States, Britain, Australia and Canada, and require taxpayers to ascertain taxable income, calculate the tax or refund payable and make the payment at the time of lodging returns, instead of having their employers fill in returns on their behalf.

'The implementation of self-assessment is a long term goal. The IRD is currently at an early stage in considering various issues associated with self-assessment and no time frame has been defined for its implementation,' Ms Lau said.

Kaiser Kwan, tax partner at Deloitte Touche Tohmatsu, however, said that based on information available from various sources, the self-assessment system was expected to be launched in Hong Kong by 2008.

Marcellus Wong Yui-keung, partner at accounting firm Arthur Andersen, said self-assessment could only be launched in about five years' time, as the whole process involved changing the computer system to maintain the new tax regime.

'They will probably implement the self-assessment system in stages, allowing taxpayers to choose whether they want to do self-assessment,' Mr Wong said.

'Once the self-assessment tax system is implemented in Hong Kong, failure to report proper tax would mean penalties potentially three times more severe than now,' he said, explaining that the heavier penalties would be because the Government would not want tax evasion to become a 'regular phenomenon'.

Mr Wong added that tax laws in Hong Kong would have to be further simplified to make it easier for taxpayers to file their returns.

But the IRD's move to crack its whip on tax evaders has come in for criticism from tax consultants. According to IRD figures for 1997-98, 915 cases were taken up by the Field Audit group, six times more than in 1991.

'The feedback from the market and clients is that they [the IRD] are very aggressive and taxpayers are facing undue pressure and harsh action in some circumstances,' Mr Wong said.

'Cases are being brought to court, which was a rarity in the past, as the Government wants to send out strong warnings to the public about the severity of and penalties for tax evasion,' Mr Kwan said, citing the case of radio host Pamela Pak Wan-kam, who was taken to court on tax-evasion charges estimated at about HK$194,000.

In July, for the first time, a company was brought to court and fined HK$130,000 for filing incorrect Employers' Tax Returns. Another taxpayer was fined HK$19,000 for making incorrect statements in his tax-returns.

'I think that the increasing number of tax-evasion court cases is a negative warning from the Government to prepare the public for the self-assessment tax system,' said Lusan Hung, a partner at Grant Thornton.

Consultants said many taxpayers facing aggressive audit teams would rather pay taxes than be dragged to court.

Ms Hung added that instead of sending out negative warnings, the IRD should educate taxpayers and be more pro-active in conducting seminars on how to fill in tax returns.

Mr Kwan said taxpayers should try to co-operate with the IRD to prevent complications in tax matters instead of resisting and complaining.

'It would waste more time, resources and money if the taxpayers refused to co-operate,' he said.

Mr Wong said the IRD is conducting field audits only in cases which they were suspicious, which some consultants find may sacrifice objectivity in the process.

'They should audit cases on a random basis to avoid prejudice,' he said.

Situations that might lead to an IRD investigation include when a company has a heavily qualified auditor's report, unreasonably low turnover or profit percentage, fails to lodge returns, to keep proper business records or to provide information for an IRD enquiry.

Graphic: taxa03gwz



Tax evasion crackdown brings heavy dividend