INLAND REVENUE DEPARTMENT
7.71 Paragraphs 8–11. Whether the Inland Revenue Department needs to do more to combat tax evasion under the Inland Revenue Ordinance. The Commissioner of Inland Revenue told the Committee that fewer cases than had been expected had been selected for prosecution due to the difficulty in obtaining evidence. The Commissioner agreed that more prosecutions were necessary. He gave a warning to would be tax evaders that he was very anxious to prosecute if a case justified it. In other cases, he would proceed administratively by imposing a financial penalty. This could be up to 300% of the tax assessed which, in his view, was a greater deterrent than the punishments normally imposed by the courts. In 15 cases prosecuted in the last 12 years, only one prison sentence had been handed down and the average penalty imposed had been between 100% and 150% only of the tax assessed. The Commissioner added that the mere knowledge of his Department's investigation efforts served as a deterrent to potential tax evaders.
7.72 The Commissioner confirmed that the Investigation Unit's work yielded $140.4 million to the revenue at a cost of $19 million. Had the Unit not been in existence, this tax would not have been recovered.
7.73 On the adequacy of his publicity, the Commissioner said that from time to time his Department had talked to the public about the seriousness of tax evasion. Prosecutions were also well publicized.
7.74 It had not been possible to increase the staff in the Investigation Unit for a number of years because of the Government's zero growth policy. He accepted the need for a balanced approach in deploying his staff in the Investigation Unit so as to provide an effective deterrent to tax evasion. With 11 additional staff promised for next year it might be possible to give more attention to prosecution work and to put more emphasis on other investigations, such as the special projects referred to in the Director of Audit's report.
7.75 Conclusions and Recommendations. The Committee note that it is planned to increase the staff establishment of the Investigation Unit of the Inland Revenue Department in 1987 by 11 posts. This should improve the deterrent to potential tax evaders. The Committee accept that the Commissioner of Inland Revenue must have discretion to deploy staff within his Investigation Unit, and that the balance between various functions within the Unit may have to be adjusted to meet changing circumstances. The Committee note that prosecution action through the courts may not be as effective a deterrent as the Commissioner's powers to exact a penalty for tax evasion. Prosecution work may entail considerable effort in return for a light sentence whilst for a relatively small administrative effort the Commissioner may impose a penalty of up to three times the amount of tax evaded. Nevertheless, the Committee stress the importance of the Commissioner of Inland Revenue being seen to be active in all areas, including prosecution and special projects work so as to deter tax evasion.
7.76 The Committee are pleased to note that in 1985 some $140 million in tax was recovered by the Investigation Unit for an expenditure of $19 million. Similar good results were achieved in earlier years. The Committee believe that this demonstrates the highly cost-effective nature of this work. Future staff requests for the Investigation Unit need to be assessed in the light of this achievement.
7.77 The Committee recommend that greater publicity be given to the criminal aspects of tax evasion.
ROYAL HONG KONG POLICE FORCE
7.78 Paragraphs 101-106 (and 5 and 7). Over-staffing in the Central Traffic Prosecutions Unit of the Royal Hong Kong Police Force at an extra cost of $2.5 million in 1985. With reference to the arrears of revenue for the fixed penalty system. noted in paragraph 7 of the Director of Audit's Report, the Commissioner said the amending legislation had encouraged earlier payment of fixed penalties. The pay-up rate for parking tickets had risen from 73% in 1983 to 80% in 1984 and to 88% in 1985. He hoped it could be improved, although at a certain stage the collection was taken out of the hands of the Police and became the job of the court bailiff.
7.79 The Commissioner of Police said that the 1983 estimate of 4.6 million parking tickets to be issued in 1987 had been justified. An extrapolation of the upward trend from 1971 clearly showed this. When the Government raised the first registration tax and yearly licence fees for private motorcars in May 1982, it did not have an immediate effect on the rate of increase in the issue of fixed penalty parking tickets. In 1983, however, when the number of licensed motorcars and the number of fixed penalty parking tickets had both decreased, the Royal Hong Kong Police Force had immediately reduced their estimate of the number of fixed penalty parking tickets to be issued in 1987-88 from 4.6 million to 1.5 million. In the following two years the estimate was reduced further to 1.2 million and 0.9 million respectively. In his view, therefore, the Central Traffic Prosecutions Unit (the Unit) had not been slow to identify the declining trend.
7.80 The Commissioner of Police accepted that there had been some over-staffing in 1985 in Section D of the Unit. However, the cost of the surplus staff was not as high as the $2.5 million suggested by the Director of Audit. The Commissioner said that the 1981 staffing standards for Section D had been drawn up during the period when the former computer system was being replaced by the present VALID II Computer System. The 1981 study had recommended that when VALID II had been brought fully into operation a further study should be made. Three requests in 1983 for a new Organization and Methods study had been refused. A further request in January 1984 had also been refused. The nature of the duties in the Unit had altered substantially following the introduction of the VALID II Computer System. New duties had emerged because of an increasing number of public complaints and the need to use police officers to enquire into them. From time to time, however, more police officers than were necessary were attached to Section D. This over-staffing had been compounded by Force welfare requirements to find clerical duties for officers who were
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