The cash-strapped SAR government has been warned of significant losses in profits tax revenue after random checks by the Audit Commission found that officials have overlooked irregularities in many cases. Write-offs of profits tax worth $1.2 billion over the past five years have also been put under the spotlight, as some of the cases were believed to be caused by delays in pursuing payment. The criticisms by the government spending watchdog come amid pressure for greater fiscal prudence to avoid worsening the budget deficit, which is expected to hit at least $60 billion. In its latest value-for-money probe, the commission criticised assessing officers of the Inland Revenue Department for failing to detect irregularities in eight of the 11 cases re-examined by auditors. The officers are supposed to alert the field audit and investigation unit to follow up irregularities found in tax returns. Without disclosing names, the commission said one of the companies was later charged back taxes of $90 million between 1994 to 2000. Taxes worth $54.8 million owed by that company before 1994 could not be recovered because the department could only tax back profits up to six years under the law. The commission stopped short of estimating the total revenue loss as a result of the problems, but warned that the amount could be significant. 'It appears that the assessing officers should have been more vigilant. Failure in assessing officers to detect irregularities in a tax return can result in significant revenue loss,' the report says. Profits tax assessed by the tax authorities has dropped from $57 billion in 1997-98 to only $48.8 billion in 2001-02. The amount of write-offs surged from $160 million in 1997-98 to $396 million in the last financial year, totalling $1.2 billion during the period. The commission criticised the department for taking four years to issue tax demands in some cases. Action to stop taxpayers from leaving Hong Kong without paying taxes often came too late. Eric Li Ka-cheung, who heads the Legco Public Accounts Committee, said: 'Of course, the exposure of such problems in times of budget deficit would make the public feel more pain.' Members of the committee will meet tomorrow to decide whether to summon officials for further explanations. But Hong Kong Taxation Institute president Joseph Fu Chi-kwong said the watchdog's findings were not surprising. 'No matter how good the system is, there will be people avoiding tax,' he said. Given the spiralling deficit, he admitted people would find it outrageous that officials on the one hand appealed for public support for cutbacks while on the other allowed revenue to drain away. He doubted it would be cost-effective to deploy more people to check tax returns. 'You can't possibly follow every case. It's a system which counts on honesty. You can't eliminate all irregularities. It is not possible and not worth doing,' he said. Commissioner of Inland Revenue Alice Lau Mak Yee-ming said detection of under-reporting of profits did not suggest previous assessments were inadequate. 'An assessing officer cannot treat each case with the same depth or spend a similar amount of time and effort as a field audit officer does,' she said. But she added that assessment procedures would be reviewed.