Hong Kong Taxation

WHAT IS FIELD AUDIT?

Objectives

The objectives of Field Audit Group are: 

  • To enhance voluntary compliance with the Hong Kong taxation laws;

  • To promote taxpayers’ compliance on keeping business records;

  • To encouraging the lodgement of correct returns ; and

  • To reduce workload of normal assessing sections.

 

The initial aims of Field Audit Group to complete small simple audit cases as soon as possible.

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Taxation Trend

 Results of the Field Audit Group:*

 

Year of Assessment

1996/97

1997/1998

1998/1999

1999/2000

 

 

 

 

 

No. of cases completed

912

915

 911

 948

  Discrepancies detected

871

879

 853

 894

  Referred for investigation

15

4

9

  No further action

26

32

49

45

 

 

 

 

 

Understated earnings and profits ($M)

3,989

4,845

5,245

6,283

 

Average understatement per case completed ($M)

 

 4.4

 

 5.3

 

5.7

 

6.6

 

Back Tax and penalties assessed on completed cases ($M)

 

 

994

 

 

1,087

 

 

1,075

 

 

1,295

*1999-2000 Annual Report, Inland Revenue Department, HKSAR, 2000

The average understatement per cases is significant increase, in the other words, it is cost-effectively and efficiently tax-collecting method. In the recent public announcement, there are increasing the Self-Assessments Returns and re-organisation of IRD structure, its implicated that it concentrate the effort in Field Audit Group.

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Are you being selected for Field Audit?

The common Field Audit cases has the characteristics or indication of non-compliance, such as the following:*

  • the Auditors’ Report in respect of the accounts of an incorporated business is heavily qualified;

  • a business has an unreasonably low turnover or profit percentage (having regard to factors such as the nature of the business, its location and type of customers);

  • persistent failure to lodge, or late lodgement of , tax returns;

  • failure to keep proper business records;

  • failure to provide material information requested by an Assessor.

 

Do your business have the above characteristics or indication?

 

If there are more than two of the above, we advice you to refer your tax representative or our Tax Department at Tel : 2528 2228 or E-mail : gary.wong@hhliu.com or donna.sun@hhliu.com 

 

*Departmental Interpretation & Practice Notes No.11A, IRD, HKSAR, 3/1999

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Why Field Audit is the nightmare to the taxpayer?

 The taxpayer may encounter during the field audit:

  • Time consuming;

  • Feel trouble in answer many tax queries & furnishing of information;

  • Additional tax may rose;

  • Penalties imposed;

  • Disturbed the core business; and

  • Psychological pressure

The Field Audit is the preliminary assessment and a mini-investigation. It trends to be completed as soon as possible. For the serious tax evasion, it will refer to Tax Investigation Unit.

 The Tax Investigation Unit is more in-depth and thorough investigation in collecting tax undercharged, the taxpayer may face to criminal prosecution and will involve substantial monetary penalties. 

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What should you do if you are selected?

 The most effectively and efficiently method is to appoint the Experience Tax Representative.

 Its crucial for the cases :

  • To finalizes in the shorter period;

  • To prevent the further investigation; and

  • To imposed heavy penalties. 

 

Practice of Inland Revenue Department

 DIPN 11A – Elements of Field Audit

 

Useful Link

Inland Revenue Department    http://www.info.gov.hk/ird/index.htm

The Taxation Institute of Hong Kong   http://www.tihk.org.hk

 

 

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