Economic Downturn Leads To Rise In Hong Kong Tax Evasion

by Mary Swire, Tax-News.com, Hong Kong

05 September 2001

According to a recent study conducted by PricewaterhouseCoopers in Hong Kong, the global economic downturn has led to an increase in both individual and corporate tax evasion in the territory.

Figures collected by the Big Five accounting firm show that the SAR Inland Revenue collected HK$2.31 billion last year from companies and individuals attempting to evade taxes, plus penalty charges, an amount 69% higher than in 1995.

However, tax experts at PricewaterhouseCoopers believe that although incidences of tax evasion are on the increase, the fact that the government has stepped up its crackdown on tax evasion and money laundering has also contributed to the greatly increased figures.

'When the Government wants to increase its income, it may raise the tax rate or introduce new taxes. But these proposals are unlikely to be implemented during an economic downturn,' explained Tim Lui Tim-lueng, senior tax partner at the Hong Kong branch of PWC. 'A more effective way to increase government income is to chase tax evasion.'

The study found that over 1,874 investigations into alleged tax evasion were carried out last year, compared to just 1,437 in 1995, and that overstating expenses (which led to the high-profile downfall of PR company boss, Pamela Pak Wan-kam earlier this year), was the most common form of corporate tax evasion committed in Hong Kong, closely followed by such dodges as understating profit, understating sales, and overstating purchase amounts.

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