SCMP Friday, November 17, 2000
Tax leash on expats may tighten
Tax officials are pursuing a recommendation that expatriates have some of their pay withheld by employers to prevent evasion.
Officials have set up a panel to examine the proposal and will also look at whether such a plan could infringe human rights and amount to racial discrimination.
The move came after the Inland Revenue Department was criticised by a government watchdog for being unable to stop expatriates leaving Hong Kong without settling taxes. The watchdog, the Audit Commission, said the practice had cost taxpayers $213 million over the past three years.
A government source said existing legislation had discriminatory arrangements for local and overseas taxpayers. One of the examples cited is that marketing agents for overseas singers performing in Hong Kong are required to withhold sufficient money to pay taxes, under Section 20B of the Inland Revenue Ordinance.
"This practice works extremely well. Likewise we think it can enable us to tax foreign employees," the source said. But the provision applies only to the self-employed, who pay profit tax. Employer groups will be consulted on the feasibility of extending it to income tax.
When asked if the proposal would be seen as racially discriminatory, the source said: "If you talk about discrimination, it already exists in the current legislation. This has been identified as a genuine problem. This group of people do not pay their taxes."
Employers who fail to alert the Government that their expatriate staff are leaving have been warned they face harsher prosecution and penalties. The commission said prosecutions were rare, despite the maximum fine of $10,000 under the ordinance.
The source said: "We do recognise there is a problem. We will take firmer action against employers who fail to discharge their obligations."
Officials can now go to court for an order to bar a person from leaving if they can prove he or she is doing so permanently and is aware of a tax liability.
The source admitted such an order was not easy to obtain. But he believed people would not be able to walk away so easily if their bosses gave notification.
The source said the amount of expatriates' unpaid taxes written off last year was only 0.2 per cent of the total salary tax charge.
Legislator Howard Young of the Liberal Party said withholding expatriates' money to pay taxes was worth pursuing. "But the most important thing is we shouldn't give the perception that foreigners are being singled out."
He said some countries adopted the principle of pay-as-you-earn and he believed foreigners in Hong Kong would accept such an arrangement. The commission said on Wednesday that a check by the auditor of 20 cases of departing expatriates found the tax due ranged from $37,080 to $1.24 million.
Although 17 failed to give notice of departure and three made a late report, none was prosecuted and only 10 were threatened with court action seeking to bar them from leaving. The process takes from 348 days to more than five years, and the orders were only issued after the individuals had left.
Employers are required by law to tell the department within one month of the departure of workers.
The auditor's report, released yesterday, said: "It is believed that a large portion of tax write-off cases were related to employees who were recruited from outside Hong Kong and who left Hong Kong on termination of their employment without first paying their tax."