SCMP Friday, November 17, 2000


Taxing situation

There is nothing new about tax dodging, despite the shameful news that expatriates have deprived the Inland Revenue of $213 million in unpaid taxes over the past three years.
The practice of tax dodging is ancient and takes place the world over. Often it is not even illegal.
It is not unknown for upright local businessmen to define profits as salary and thus pay 15 per cent tax rather than the corporate rate of 16.5 per cent. That is a perfectly orthodox way of lessening the tax burden. "The Kai Tak run", as it was first called when foreign workers skipped town with every cent safely in their pockets, is the unacceptable method.
People who come here for jobs receive the same treatment as residents. They can take advantage of medical services at a nominal sum; their children can have free education at government schools. All they are asked is to contribute to one of the lowest tax regimes in the developed world. For these people to cheat a city that has, in many cases, paid them a higher rate for their services than they would earn at home, is nothing short of contemptible.
But the Audit Commission's findings have to be kept in context. Out of a workforce of 3.2 million, only 10,000 employees pay salaries tax at the standard rate, and around two million pay nothing at all. That is why the Financial Secretary's biggest headache lies in balancing the books without dipping into the reserves.
However, when it comes to raising revenue, every dollar counts. A way must be found to stop the fraudsters.
Even if the $213 million quoted works out at only $70 million annually, it is vitally needed in an economy faced with a shrinking tax base. The recent recession sent tax receipts plummeting. In 1997-98, a single taxpayer paid a bill of almost $61 million, not far short of the yearly expatriate tax losses. In the past financial year, the top taxpayer was hit for $12 million.
However, it should not be forgotten that high-earning expatriates make a large contribution to Inland Revenue coffers. Only a small minority are tax cheats, so it will be resented if the many are singled out for separate treatment because of the sins of the few. Subjecting foreigners to a different tax regime is discriminatory. The most reasonable answer is either to put everyone on some kind of pay-as-you-earn system - which would be costly for the Government - or to transfer the onus to employers.
Instead of the $10,000 bosses can be fined if their staff skip town, they could be held liable for the total sum. A highly unpopular solution no doubt, but one that would encourage firms to do what is expected of them and ensure all staff pay their taxes before they return home.