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To ensure tax compliance,
the Department pursues its enforcement policy to effectively
detect and punish non-compliance. The Field Audit and Investigation
Unit is responsible for conducting field audits and investigations
on businesses and individuals with a view to combating tax
evasion and avoidance. |
Back tax is assessed and
penalties are generally imposed where discrepancies are detected.
During 2003-04, the Field Audit and Investigation Unit completed
1,863 cases (including avoidance and prosecution cases) and
assessed back tax and penalties of about $2.06 billion (Figure
32). |
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2000-01 |
2001-02 |
2002-03 |
2003-04 |
| Number of cases completed |
1,920 |
1,921 |
1,862 |
1,863 |
| Understated earnings and profits ($m) |
9,310.8 |
8,940.9 |
9,316.3 |
9,744.8 |
| Average understatement per case ($m) |
4.8 |
4.7 |
5.0 |
5.2 |
| Back tax and penalties assessed ($m) |
2,154.8 |
2,101.5 |
2,052.5 |
2,059.2 |
| Back tax and penalties collected ($m) |
1,962.4 |
1,787.6 |
1,949.1 |
2,039.9 |
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Field
Audit
Field audit is conducted on both corporations and unincorporated
businesses. The work of field auditors 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.
In 2003-04, there were 14 Field Audit sections.
Anti-Tax Avoidance
Two of the 14 Field Audit sections concentrate on
tackling tax avoidance schemes, whereas other investigation
officers and tax auditors handle avoidance cases on an operational
need basis. |
During 2003-04, the Field
Audit and Investigation Unit completed 196 tax avoidance cases
and assessed back tax and penalties of $636 million (Figure
33). |
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2000-01 |
2001-02 |
2002-03 |
2003-04 |
| Number of cases completed |
193 |
202 |
200 |
196 |
| Understated earnings and profits ($m) |
2,363.0 |
2,783.7 |
3,131.0 |
3,769.3 |
| Average understatement per case ($m) |
12.2 |
13.8 |
15.7 |
19.2 |
| Back tax and penalties assessed ($m) |
445.1 |
510.2 |
565.4 |
636.2 |
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Investigation
Investigation officers are responsible for conducting in-depth
investigations where tax evasion is suspected, and taking
penal action (including prosecution proceedings in appropriate
cases) to create a deterrent to tax evasion.
In 2003-04, there were 8 Investigation sections. |
| Prosecution
One of the 8 Investigation sections focuses 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 2003-04, the Unit successfully prosecuted
5 tax evasion cases. The most serious case involved the understatement
of business profits of some $50 million. The defendant was
convicted and was jailed for 18 months in addition to a fine
of $11 million. It was the first case that the Secretary for
Justice instituted prosecution under Common Law and the defendant
was punished under Criminal Procedure Ordinance. Another businessman
was imprisoned for 5 months and fined $1.5 million for concealing
his business sales. Two cases involved the understatement
of rental incomes. Monetary fines plus imprisonment of 2 to
6 months were imposed on each of the defendants. The last
case involved the understatement of salaries income. Fine
and suspended sentence were imposed on the defendant. |
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