Taxation – Penalty Policy
From series 1 – Virtual Office, OneStart Business Centre has always tried to introduce the associating law and regulations for our readers. We hope by pointing out the Ordinance and requirements, we could help to remind our readers about points you might easily missed. Reading through the Department’s page and being redirected to the right page for the information you need might be difficult, but OneStart Business Centre is here to help!
The Inland Revenue Ordinance has imposed requirements in relation to company’s filing timely and accurate returns, including the provision of accurate financial account information.
Timely payment of tax is important. As in Section 71 (1) of the Ordinance, it is required that the taxes are to be paid in the manner directed in the notice of assessment on or before the specified date. Any payment of the tax after such specified date would be deemed as not paying tax on time and a violation of the ordinance.
Apart from not paying the tax, not having a reasonable excuse with the provision of inaccurate information will subject you to a fine of $10,000 or more, or even a further fine of the undercharged tax, prosecution of actions are as follows:
(i) makes, or causes or allows to be made an incorrect return;
(ii) makes an incorrect statement in connection with a claim for any deduction or allowance;
(iii) gives any incorrect information in relation to any matter or thing affecting the person's or any other person's liability to tax;
(iv) fails to notify refund of premiums paid under a Voluntary Health Insurance Scheme policy or qualifying deferred annuity policy after claiming deduction of the premiums;
(v) fails to furnish a return in time; or
(vi) fails to inform chargeability to tax.
Other than an unexplainable undercharged tax, any person who have been proven to be willfully with intent to evade or to assist any other person to evade tax would face a prosecution, and be subject to a fine of $50,000, a further fine of the amount undercharged, and even a 3-year imprisonment.
Timely and accurate tax returns are crucial for you would not wish to get into prosecutions. There have been pages teaching people how to find loopholes in the ordinance so as to minimize the amount of tax you would have to pay. However, loopholes might also be traps. One should not risk a fortune and the reputation of your company and hide in the grey areas.
If you have financial difficulties in settling the tax bills on time, the government have allowed application for paying tax by instalments. However, a surcharge of not exceeding 5% on the amount outstanding after the due date may be imposed. A further surcharge of not exceeding 10% may also be imposed on the amount remaining unpaid (including tax and 5% surcharge already imposed) after six months from the due date. Simply filled in the application form and provide the officials with the supporting documents:
(i) a payment proposal,
(ii) copies of the bank statement/passbook for the latest 3 months,
(iii) details of their income and expenditure for the past 3 months
(iv) the latest 3month management accounts (including profits and loss account and balance sheet) and the cash flow position and forecast
The first instalment of tax not paid by the date specified on the notice, would result in an immediate due of the second instalment of tax. This entire balance of the total tax payable, as stated in the notice of assessment, that is unpaid would be deemed us a violation of the ordinance, and the Inland Revenue Department would take legal action and recover the amount immediately.
Recovery actions that the commissioners of the Department might advance to include
(1) an imposition of 5% surcharge on the entire balance of the demand notice
(2) issue of recovery notice to third parties, and
(3) initiation of legal action.
In light of the financial difficulties in the pandemic time, government has implemented a relief measure for taxpayers. For instalment plans approved by the Inland Revenue Department, allowing taxpayers in financial difficulties for settlement of taxes issued between May 2021 and May 2022 for the Year of Assessment 2020/21, no surcharge will be imposed for a maximum period of one year counting from the respective due dates of the demand notes.
Although the government have promised a relief measure, but be noted that it is only applicable for those whose application for instalments have been approved. Also, the tax returns would still be required to submit to the department on time. 31 March is closing in, and it is time to get ready for your tax returns date!