Q:
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What are the penalty policies if a taxpayer does not comply with the requirements of the Inland Revenue Ordinance?
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A:
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Depending on the nature and/or degree of culpability of the offence and at the Inland Revenue Department Commissioner’s discretion, he may either:
• Institute prosecution;
• Compound; or
• Assess additional tax
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Q:
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What factors will be considered by the Commissioner when deciding which of the above-mentioned action is to be taken by him?
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A:
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Factors which may affect the course of action to be taken include the strength of evidence, the amount of tax undercharged or would have been undercharged, the sophistication of scheme and the period of time over which the offence was committed.
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Q:
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What penalties would be imposed if a taxpayer failed to notify chargeability to salaries tax or property tax or failure to submit such tax return on time?
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A:
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For such offences, the Inland Revenue Department’s policy is normally to compound such offences first. But for simple and inadvertent omission or understatement of income or making an incorrect statement in respect of a claim of an allowance or deduction, the amount of fine can be referred to the following penalty loading scale:
First offence: 10% of the amount of tax undercharged.
Second offence within 5 years: 20% of the amount of tax undercharged.
Third or subsequent offences within 5 years: 35% of the amount of tax undercharged.
The above percentages are for general guidance only. IRD may be adjusted upwards or downwards depending on the circumstances of each case like the time span over which the offence is committed, the amount of tax involved, the reasons given for committing the offence, the attitude of and the remedial steps taken by the taxpayer.
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Q:
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Does the above penalty scale apply the same with profits tax cases?
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A:
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Yes. But besides the above penalties, additional fine will be levied in accordance with the below penalty loading scale:
First offence: 20% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued.
Second offence within 5 years: 30% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued.
Third or subsequent offences within 5 years: 50% of the amount of tax undercharged, if the return is filed after two or more estimated assessments are issued.
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Q:
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What mitigating factors will be considered before IRD make a fine?
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A:
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IRD will consider factors like a taxpayer have a low standard of education, sincerity and willingness to compromise, one-off but not repeated evasion acts, relatively small cases, among others.
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