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LCQ19: Taxes written off due to departure of taxpayers from Hong Kong

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Following is a question by the Ir Dr Hon Ho Chung-tai and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (February 2):

Question:

It has been reported that cases of emigrating Hong Kong residents and expatriates who ceased working in Hong Kong not clearing their tax payments before departing Hong Kong have been rather common, resulting in substantial loss in revenue every year. In this connection, will the Government inform this Council of:

(a) the respective numbers of persons and total amounts of taxes involved in the tax evasion cases mentioned above, in each of the past three years;

(b) the existing mechanism to prevent such persons from evading tax and to recover the taxes in default; and

(c) the new policies it may adopt to stop such persons from evading tax?

Reply:

Madam President,

(a) In the past three years, the numbers of cases and the amounts of taxes written off due to the departure of taxpayers from Hong Kong before their tax liabilities are fully settled are as follows:

(b) A taxpayer is required under section 51 of the Inland Revenue Ordinance (IRO) to notify the Inland Revenue Department (IRD) in writing of his impending departure from Hong Kong one month before the expected date of departure. The taxpayer is liable to a penalty (not exceeding $10,000) for non-compliance.

Separately, in the case of salaries tax, employers are also required under section 52 of the IRO to notify IRD in writing of the impending departure of their employees one month before their expected date of departure from Hong Kong, and to withhold within that month payment of any monies due to them until receipt of a letter of release from IRD. The amount withheld could be used to set off the employees' tax liabilities if the employees leave Hong Kong without settling their tax liability in full. If the employer fails to comply with these requirements, he is liable to a penalty (not exceeding $10,000).

Furthermore, under section 77 of the IRO, IRD may apply to the District Judge for a "Departure Prevention Direction" to prevent taxpayers who intend to leave Hong Kong from departing, or who have left Hong Kong to reside elsewhere from leaving Hong Kong again upon their return to Hong Kong, without paying their tax liability in full or providing sufficient security to secure the payment. If the District Judge is satisfied that it is in the public interest to ensure that the person does not depart from Hong Kong or, if he returns, does not depart again, without first paying the tax or furnishing security to the satisfaction of IRD for payment of that tax, he shall give direction to the Director of Immigration and the Commissioner of Police directing them to prevent the person from departing from Hong Kong without paying such tax or furnishing such security.

Even in cases where the tax has to be written off, IRD continues to closely monitor the cases thereafter. IRD maintains an information database to keep track of the income details of taxpayers. Recovery actions will be resumed as and when fresh information conducive to tax recovery comes to light. Under section 71 of the IRO, the Commissioner of Inland Revenue ("CIR") may order that a sum not exceeding 5% in the amount in default shall be added to the tax. If the default period exceeds six months, CIR may also order that a sum not exceeding 10% in all of the unpaid amount shall be added to the unpaid amount. Taxpayers' obligation to pay tax will not be relieved by the lapse of time.

In addition to the above, IRD also makes special efforts to educate taxpayers on their obligations under the tax laws. IRD makes use of posters and information pamphlets distributed to the public to explain to taxpayers and employers their respective responsibilities if the taxpayers or the employees of the employers plan to leave Hong Kong.

(c) IRD will continue to monitor the situation closely. The Administration considers the present mechanism effective in striking a balance between revenue protection and protection of taxpayers' rights to freedom of travel and to enter and leave Hong Kong. IRD will continue to strengthen taxpayers' compliance through publicity, education and strict enforcement actions.

Ends/Wednesday, February 2, 2005

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