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(Source : Government Information Centre)

No surcharge would be imposed by IRD on tax heldover


In response to a report and an editorial in a newspaper today (December 3) concerning surcharge imposed by the Inland Revenue Department (IRD) on tax payment, an IRD spokesman clarified as follows:

Firstly, it has to be pointed out that, in the absence of authority given in legislation, IRD would not impose surcharge or charge interest on any provisional tax held over. Secondly, it must be stressed that provisional tax is entirely different from and should not be confused with prepayment of tax.

Provisional tax is determined by reference to the income, deductions and allowances of the preceding year. To cater for any changes to such items, the Inland Revenue Ordinance (the Ordinance) allows the taxpayers to apply to the IRD for holdover of the whole or part of the provisional tax on certain specified grounds. Such grounds include unemployment, a reduction in more than 10% of previous year's income or the recent increase in the ceiling of Home Loan Interest deduction. Upon receipt of the applications, the IRD will adjust the amount of provisional tax and holdover the whole or part of the provisional tax demanded according to information provided by taxpayers. A revised notice of payment will then be sent to the taxpayers accordingly.
The IRD will impose a surcharge under the Ordinance only when a taxpayer fails to pay tax after the due date specified in the tax demand note. No surcharge would be imposed on the whole or part of the provisional tax allowed to be heldover.

A surcharge is a penalty to discourage late payment of tax. It is not an interest on tax overdue, therefore it is not appropriate to compare it with the interest rate on the loans or tax loans offered by the banks or financial institutions.

If, for some unexpected circumstances or reasons, a taxpayer faces financial difficulties and cannot settle tax on time, he/she can approach the IRD's Collection Enforcement Section to apply for instalment payment of the tax due. Generally, a surcharge will be imposed on tax overdue irrespective of whether an instalment plan, on the ground of a taxpayer's financial difficulties, has been accepted by the department. Such a measure aims to encourage timely payment of tax.

However, in very exceptional circumstances, the department will exercise discretion given by law and consider not imposing surcharge. For instance, a taxpayer has successfully applied for holdover of a part or the whole of provisional salaries tax payable on the ground that he is unemployed. However, due to severe financial problem consequent upon unemployment, the taxpayer still cannot afford to settle the balance of tax payable but has showed sincerity in agreeing to an acceptable instalment plan with the department. Provided that the taxpayer complies with the instalment plan and duly settles the tax by each instalment date, the department will consider not imposing the surcharge in such a case.


End/Monday, December 3, 2001