on 5 November 1997
ITEM FOR ESTABLISHMENT SUBCOMMITTEE OF
HEAD 76 - INLAND REVENUE DEPARTMENT
Subhead 001 Salaries
Members are invited to recommend to Finance Committee the creation of the following permanent post in the Inland Revenue Department from 1 January 1998 -
1 Deputy Commissioner of Inland Revenue
(D3) ($127,900 - $135,550)
The Commissioner of Inland Revenue (CIR) needs adequate directorate support at the Deputy Commissioner level in order to cope with the increasing volume and complexity of work of the Inland Revenue Department (IRD). The present supernumerary post of Deputy Commissioner of Inland Revenue (Operation) (DCIR(O)) (D3) post will lapse on 1 January 1998.
2.The CIR proposes to make the supernumerary DCIR(O) post permanent.
3.Following the approval of Finance Committee in July 1995, we created a supernumerary DCIR(O) post in IRD to share the increasing responsibilities of the then Deputy Commissioner of Inland Revenue and alleviate the workload of the Commissioner. The main duties of the DCIR(O) post are to oversee operational matters, including tax collection, field audit and investigation, and to develop policies and strategies on information technology and improvement of taxpayer services. The original DC post, redesignated as DCIR(Technical) (DCIR(T)), is now responsible for overseeing technical and statutory matters, including tax assessments and appeals. The job descriptions of DCIR(O) and DCIR(T) are at Enclosures 1 and 2 respectively. The supernumerary DCIR(O) post is scheduled to lapse at the end of 1997.
4.In approving the creation of the supernumerary DCIR(O) post, the Finance Committee noted that we would review the permanent need for the post before December 1997. Accordingly, the CIR has recently conducted the review and concluded that the post should be retained on a permanent basis. The main responsibilities of the DCIR(O) post and the detailed justification for making the post permanent are set out below.
Review of directorate structure
- Collection of tax and recovery of tax arrears
The DCIR(O) post is responsible for overseeing tax collection and the review of the methodology and effectiveness of tax collection work. Though the majority of taxpayers settle their tax liabilities in a timely manner, there is always a significant number who are late in their tax payment or are in default. The expansion of field audit and investigation activities has also exposed more cases requiring tax recovery action. To protect the revenue, IRD has stepped up tax recovery action, including the imposition of financial penalties on late payment and default cases. The number of tax surcharges at the 10% rate has increased from 1 612 in 1991-92 to 2 350 in 1996-97, a growth of 46%. Following a recommendation by the Public Accounts Committee in 1996, IRD now imposes the 10% surcharge on all outstanding tax payments overdue for six months or more. We estimate that this will further increase the number of tax surcharge cases to 35 000 in 1997-98. There is a continuous need for direction and supervision in this area of work at the Deputy Commissioner level to ensure that tax collection and recovery are dealt with in an efficient and cost-effective manner.
- Tackling tax evasion and avoidance and enhancing voluntary compliance
The strengthening of IRD's field audit and investigation work to tackle the prevalence of complex tax avoidance arrangements and tax evasion in the past few years has achieved significant results. Back taxes and penalties recovered increased from $963 million in 1993-94 to $2 billion in 1996-97, an increase of 110%. However, tax avoidance and evasion are perennial problems and new and more sophisticated evasion tactics and avoidance schemes may emerge from time to time. IRD requires an officer at Deputy Commissioner level to give overall direction in the field audit work and to regularly review strategies to combat tax evasion and minimise opportunities for tax avoidance. In 1996-97, IRD completed 595 service company cases, recovering $67 million from back tax/penalty and 45 tax avoidance cases, recovering $104 million. Also in 1996-97, IRD handled 54 cases on non-compliance with tax record keeping requirements and imposed a total penalty of $1 million in these cases.
In addition to investigation and prosecution action, taxpayer education is equally important. Since the creation of the DCIR(O) post, IRD has organised seminars for employers and tax representatives and outreaching activities to assist taxpayers to comply with their tax obligations. The results have been very encouraging. For example, the number of business taxpayers found to have kept sufficient business records in a survey conducted by IRD had increased substantially from 60% in 1994 to 95% in 1996. Profit tax returns submitted by taxpayers in time have increased from 79.6% in 1994-95 to 86.5% in 1996-97. IRD will continue to adopt a two pronged approach, i.e. public education and penalty/prosecution action, and there is a continuous need for direction and supervision at DCIR level in this area of work.
- Use of information technology (IT)
The use of computers and the application of IT in IRD continues to develop and expand. Following the completion of the implementation of the five-year Information Systems Strategy Plan (ISSP) in 1996-97, IRD has developed a total of nine major computer application systems to improve the department's operational efficiency. A review of the ISSP is being conducted under the direction of DCIR(O), who chairs the Steering Committee on Second ISSP set up to oversee the review study and to decide on the way ahead. The close direction and supervision of DCIR(O) is required on a long-term basis for the implementation of any subsequent ISSP projects in the department. Other major IT developments under planning include the automation of tax return processing and the redevelopment of the business registration system, which, on completion, will shorten by half the processing time for the issue of business registration certificates and certified true copies of business particulars. DCIR(O) is responsible for overseeing the operation and development of these systems to ensure the effective use of IT in the department. The post-holder continues to play a key role in strategy formulation in order for IRD to take full advantage of IT to enhance its efficiency and productivity.
- Improving taxpayer services
It is important to maintain and improve the various services of IRD to taxpayers. To achieve this objective, it is necessary to review the targets of the department under its Performance Pledge regularly through the operation of the IRD Service Standards Committee under the chairmanship of DCIR(O), which coordinates all units/sections of the department in this area of work. Moreover, DCIR(O) also chairs the independent Users' Committee which is an external body comprising tax practitioners, professionals and academics to monitor the taxpayer services of IRD. There is a continuous need for DCIR(O)'s supervision and direction in this area of work to ensure that IRD provides efficient and user-friendly services to taxpayers.
- Helping Business Programme
Government has issued a number of directives for compliance by departments in taking forward the "Helping Business' initiative. In the case of IRD, the department is required to ensure the provision of better tax collection services, to provide enquiry facilities to enable customers to conduct search on business registration records, to speed up the first-time processing for stamp duty, to streamline payment procedures etc. DCIR(O) is responsible for evaluating IRD's compliance with these directives and for identifying improvement measures. The long term involvement and direction of a senior officer at DC level is required in putting these initiatives in place and for designing other improvement measures to facilitate business operation.
- Human Resource Management
In the rapidly changing business environment, it is important to foresee and identify training needs so as to maintain the professional standards of the department. IRD fully recognises the importance of and the need for professional and management training for its staff and to keep pace with developments in tax administration. The department has recently formulated and implemented a series of structured training and career development programmes for its professional staff. DCIR(O) has to regularly review the effectiveness of these programmes with the Assistant Commissioners and to make adjustments where necessary in order to ensure that the programmes meet the changing work requirements and the long-term operational needs of the department.
5.In reviewing the DCIR(O) post, the CIR has considered whether the other DCIR post, i.e. DCIR(T), can take over the wide range of responsibilities set out in paragraph 4 above. The CIR has concluded that this is not possible because DCIR(T) is already fully loaded with work concerning the imposition of tax penalties, and appeal cases which have increased significantly in both number and complexity in recent years. For example, the number of penalty appeals settled at the Board of Review (Inland Revenue) has increased substantially from 22 in 1991-92 to 68 in 1996-97. DCIR(T) is also closely involved in formulating legislative changes to the tax laws so as to respond to the changing tax environment, and in the negotiation of double taxation relief arrangements, which involve negotiations with our bilateral aviation partners on a case by case basis. To date provisions have been implemented with Canada, the Republic of Korea, the Netherlands and New Zealand. Provisions have also been concluded with Germany and the United Kingdom. All these commitments leave DCIR(T) with no spare capacity to absorb any of the DCIR(O)'s current duties.
6.In respect of IRD's directorate structure, it is administratively not feasible for one DCIR to supervise, directly or indirectly, 22 directorate staff at the Assistant Commissioner and Chief Assessor level. Since the creation of the existing permanent DCIR post in 1965, the establishment of directorate posts below the rank of DCIR has grown almost four times, from six to 22, and the establishment of non-directorate posts in the department has grown six times from 518 to 3 320. An organisation chart of IRD is at Enclosure 3 and the responsibilities of each unit in the department are shown in Enclosure 4. The creation of the DCIR(O) post has served to rationalise the workload at the DC level. Having regard to the importance, complexity and the permanent nature of the work of the supernumerary DCIR(O) post, the CIR considers that to allow the post to lapse would seriously undermine the efficiency and effectiveness of IRD. He therefore proposes to make the supernumerary DCIR(O) post permanent to ensure the smooth and effective operation of the department.
7.The additional notional annual salary cost of the proposal at mid-point is -
||No. of Post
|New permanent post
The additional full annual average staff cost of the proposal, including salaries and on costs, is $2,740,884. We have included sufficient provision in the 1997-98 Estimates to meet the cost of the proposal.
CIVIL SERVICE BUREAU COMMENTS
8.The Civil Service Bureau supports the retention of the supernumerary post on a permanent basis and considers the ranking and grading of the proposed post appropriate having regard to its duties and level of responsibilities.
ADVICE OF THE STANDING COMMITTEE ON DIRECTORATE SALARIES AND CONDITIONS OF SERVICE
9.The Standing Committee on Directorate Salaries and Conditions of Service has advised that the grading proposed for the post would be appropriate if the post were to be created.
Enclosure 1 to EC(97-98)30
Main Duties and Responsibilities of
Deputy Commissioner of Inland Revenue (Operations) (D3)
Responsible to : The Commissioner of Inland Revenue
- To supervise the work of Unit 3 (Collection, Business Registration and Miscellaneous Taxes), Unit 4 (Investigations), Field Audit Section, Information Systems Section, Training Section, Departmental Administration Section and Taxpayer Services Section.
- To determine objections against assessments and additional assessments issued under the Inland Revenue Ordinance following investigations or field audit actions.
- To impose penalties authorised under the Inland Revenue Ordinance for contravention of its provisions, in particular, for tax evasion and failure to file correct returns.
- To oversee the operation and development of the Department's computer systems.
- To monitor and improve the provision of taxpayer services.
- To oversee the delivery of taxpayer education programmes.
- To oversee the daily administration of the Department, including establishment, personnel, office and resource management.
- To chair the Users' Committee, the Service Standards Committee, the Steering Group on Prosecutions, the Operations Review Committee, the Departmental Consultative Committee, the Departmental Establishment Committee, the Career Development Planning Committee for Assessor Grade, the Departmental Staff Suggestion Scheme Committee and the Training Committee.
- To chair the Steering Group on the Second Information Systems Strategy Study Project.
- To act as Head of Grade for Assessors below directorate level.
- To authorise, within delegated limits, the write-off of unpaid taxes.
Enclosure 2 to EC(97-98)30
Main Duties and Responsibilities of
Deputy Commissioner of Inland Revenue (Technical) (D3)
Responsible to : The Commissioner of Inland Revenue
- To supervise the work of Unit 1 (Profits Tax Assessment), Unit 2 (Salaries Tax and Personal Assessments), Appeals Section, Technical Services Section and Internal Audit Section.
- To formulate and implement policies on assessment of returns.
- To impose financial penalties under the Inland Revenue Ordinance for contravention of its provisions.
- To determine objections against assessments issued under the Inland Revenue Ordinance by the Assessing Units.
- To recommend to the Commissioner future actions on adverse decisions of the Board of Review (Inland Revenue) and the Courts.
- To approve determinations issued under the Inland Revenue Ordinance and the case headnotes of all decisions made by the Courts and the Board of Review (Inland Revenue).
- To act as the Secretary to the Board of Inland Revenue.
- To formulate proposals for legislative changes for ordinances administered by the Inland Revenue Department including the Inland Revenue Ordinance, Stamp Duty Ordinance, Estate Duty Ordinance, Tax Reserve Certificates Ordinance, Hotel Accommodation Tax Ordinance and the Betting Duty Ordinance.
- To approve necessary amendments to existing technical publications and the issue of new publications.
- To handle media enquiries.
- To advise the Commissioner on technical issues arising from negotiations of agreements for relief of double taxation.
- To chair the China Tax Study Committee and to advise the Commissioner on technical issues arising from cross border trading and taxation matters.
- To administer the advance tax ruling system in respect of complicated business transactions.
Enclosure 4 to EC(97-98)30
Main Responsibilities of Units in Inland Revenue Department
||Assessment of profits tax for corporations and partnerships
||Assessment of tax for individuals and assessment of property tax
||Collection of tax and miscellaneous levies, including stamp duty, betting duty and estate duty; and business registration
||In-depth investigation of suspected tax evasion cases
|(i) Appeals against tax assessment to the Board of Review (Inland Revenue) and to the Courts
(ii)Technical services, including legislation, research and development, charitable donations and retirement schemes, complaints and double taxation
||(i) Field audit, including audits on business records and verification of the correctness of the rental income reported by property owners
(ii) Information systems, including maintenance of existing computer systems and further development
(iv) Departmental administration
(v) Taxpayer services