Field Audit | Investigation | Property Tax Compliance Checks
The Investigation Unit and the Field Audit Group were merged on 1 April 2000 to form the Field Audit and Investigation Unit with a view to enhancing the efficiency and flexibility in tackling tax evasion, minimizing opportunities for tax avoidance, and promoting voluntary compliance by taxpayers.
Field audits and tax investigations require not only the application of accounting skills and taxation knowledge to different business environments, but also extensive use of interviewing, negotiating and investigative techniques.
Back tax assessed and penalties are generally imposed where discrepancies are detected. During 2000-01, the Field Audit and Investigation Unit completed 1,920 cases (including avoidance and prosecution cases) and assessed back tax and penalties of about $2.2 billion (Figure 32).
|Number of cases completed||1,816||1,812||1,874||1,920|
|Understated earnings and profits (Dollars million)||8,448.9||9,075.2||10,232.3||9,310.8|
|Average understatement per case (Dollars million)||4.7||5.0||5.5||4.8|
|Back tax and penalties assessed (Dollars million)||2,128.4||2,141.3||2,318.9||2,154.8|
|Back tax and penalties collected (Dollars million)||2,090.8||2,074.7||2,147.8||1,962.4|
Field audit is conducted on corporations and unincorporated businesses. The work entails site visits to business premises and examination of accounting records of taxpayers, in order to ascertain whether correct returns of profits have been made. The Field Audit activities are intended to encourage voluntary compliance with taxation requirements under the law. By giving the Department's enforcement activities a more visible presence, it is hoped that taxpayer will be reminded of the need to keep sufficient business records and lodge correct returns.
There are at present 12 Field Audit teams. Two of these teams concentrate on tackling tax avoidance schemes, whereas other investigation officers and tax auditors handle avoidance cases on an operational needs basis.
During 2000-01, the Field Audit and Investigation Unit completed 193 tax avoidance cases and assessed back tax and penalties of $445 million (Figures 33).
|Number of cases completed||157||156||162||193|
|Understated earnings and profits (Dollars million)||1,722.4||2,032.9||3,864.3||2,363.0|
|Average understatement per case (Dollars million)||11.0||13.0||23.9||12.2|
|Back tax and penalties assessed (Dollars million)||257.8||303.3||654.1||445.1|
Investigation officers are responsible for detailed investigations where tax evasion is suspected, and taking penal action (including prosecution proceedings in appropriate cases) to create a deterrent to tax evasion.
There are 11 teams of Investigation officers. Two of these teams focus on criminal investigation of tax evasion.
Tax evasion is a serious crime. If a person is convicted of tax evasion, the Inland Revenue Ordinance provides for a maximum custodial sentence of three years.
In 2000-01, the Unit successfully prosecuted 4 tax evasion cases. The first case involved a failure to notify chargeability to property tax. The taxpayer in that case was ordered to pay a fine of 160% of the tax undercharged. The other two cases involved omissions of income chargeable to Salaries Tax. The employer was fined and the employee was ordered to perform 240 hours of community services. The fourth case involved an understatement of sales by a business. The taxpayer concerned was sentenced to 9 months' imprisonment.
The Unit also successfully prosecuted a practicing accountant who failed to maintain sufficient business records. The law provides for a maximum penalty of $100,000 for such non-compliance.
Property Tax Compliance Checks
In addition to conducting audits on businesses, the Unit also carries out verification checks on the correctness of rental income reported by property owners. During the year 2000-01, back tax and penalties of $24.4 million were assessed on 4,600 completed property tax cases (Figure 34).
|Number of cases completed||4,442||4,642||4,401||4,600|
|Understated rental income (Dollars million)||172.0||194.0||194.9||203.4|
|Back Tax and penalties assessed (Dollars million)||20.6||23.2||23.3||24.4|
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(Last updated/reviewed : February 18, 2002)