Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Section 82A additional tax - field audit and investigation

This tax is usually called Section 82A penalty.


The chief purpose for the penalty is "commercial restitution" --- that is to recover the loss due to the delay in the tax collection.  Other purposes include deterring the public from tax offences and educating the offender to comply with the tax law in future.


The penalty is imposed for tax offences without criminal intention of evading tax or for tax offences without sufficient evidence to take criminal prosecution. Because the degree of proof for criminal prosecution, known as “beyond reasonable doubt”, requires a lot of tax investigation work, it is impossible for the Revenue to prosecute every tax offender. So, depending on the evidence adduced and the then manpower constraint, only a few offenders of blatant tax evasion are prosecuted. The remaining tax offenders are penalized by Section 82A additional tax.


Legally speaking, the maximum penalty is three times the tax undercharged and the penalty is imposed by the Commissioner or Deputy Commissioner of Inland Revenue personally. Of course, in practice, almost all the penalties are exactly the amounts recommended by the assessors, as endorsed by the Commissioner or Deputy Commissioner. This practice is perceivable as there are so many tax cases (including all prosecution, Section 82A, appeal cases) requiring their approval, not to say all such other important duties such as policy matters, administrative and public relation work, special tasks, … etc. requiring their personal attention.


Before imposing the tax penalty, the tax offenders are invited to explain the tax offences. If they have a reasonable excuse, they will not be penalized. What is a reasonable excuse depends on the circumstances of each case --- Click here for more.


The assessors' recommendations are generally based on a tax penalty table.  As far as investigation and field audit cases are concerned, tax offences are classified into three groups of culpability, namely: (a) intentional disregard, (b) recklessness and (c) no reasonable care. Moreover, each group of offence is further classified into four categories of co-operation, ranging from “voluntary disclosures” to “disclosure denied”, for computing the penalty. The penalty rates on the tax undercharged, before restitution, are as follows.



Voluntary disclosure

Disclosure on challenge 

Belated disclosure

Disclosure Denied

Intentional disregard










No reasonable care






The penalty as determined above is then added to the commercial restitution which is determined by the tax undercharged times the then best lending rates. The computation  is usually done by the assessor  with a software. In any case, the total penalty rate is restricted according to the following table.



Voluntary disclosure

Disclosed on challenge 

Belated disclosure

Disclosure Denied

Intentional disregard










No reasonable care






The Revenue has to advise the offender which group of culpability and which category of cooperation have been adopted for the penalty. If the offender disagrees with the penalty, he can appeal to the Board of Review. But caution: if the Board opines the taxpayer's appeal frivolous, vexatious, without merit or an abuse of the appeal mechanism, the Board will impose the taxpayer to pay the cost of appeal up to $5,000.


The Board of Review in the case D118/02 commented on the Revenue's penalty policy. Click here for more. 

The Revenue says that the actual penalty to be imposed is the amount determined by the penalty table subject to a further adjustment that may be upward or downward according to the merits of each case. In practice, almost all the adjustments are downward. This is because an upward adjustment can easily lead to appeal to the Board of Review --- that will unquestionably increase the workload of the case officers. But a downward adjustment will lower the chance of appeal. So, take my advice: do ask for a downward adjustment, particularly when there are mitigating factors, such as:

  1. There is indication of misconception or confusion in completing the tax return.

  2. The mistake is due to a slip of the mind.

  3. The taxpayer is a lay man without good knowledge of tax and accounting.

  4. The taxpayer has good compliance record before.

  5. The taxpayer has taken actions to ensure the omission not to be repeated in future.

  6. There are special circumstances case warranting a further downward adjustment, e.g. financial difficulty, unemployment, illness, … etc.

The above mitigating factors can lead to a further downward adjustment of penalty by up to 25%. So, don't forget to point out such factors in the written representation where applicable. 


Click here for the Section 82A penalty in cases where no field audit or investigation is involved.


What is a reasonable excuse


In practice, a lot of taxpayers appoint representatives to deal with IRD’s investigation. These representatives may make compromise with IRD on amount of assessable profits in order to end the tax investigation. After settling the tax under investigation, the IRD may seek to impose penalty against the taxpayer for under-reporting of profits. Can the taxpayer claim that the compromise was void for the basis of penalty? Press here for details.


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