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Tax Recovery Measures

Tax Recovery Measures
TAX
September 16
11:00 2017

In today’s evolving commercial landscape, it is important that business and individuals are aware of their tax obligations.

The onus is on organisations to be accountable in reporting their tax obligations while at the same time ensuring that the true potential of their business is recognised as it grows.

Unfortunately, in Fiji we have noticed that some businesses are actively looking for opportunities to evade taxes. What is of more concern to us at the Fiji Revenue and Customs Service (FRCS) is that some tax agents and accountants are also colluding with businesses so to avoid paying their fair share of taxes.

Which has resulted in more than 200 businesses and sole traders currently being investigated for alleged tax evasion, with majority of these cases being reported through our Whistleblower line.

While the Fiji Revenue and Customs Service encourages voluntary compliance, some taxpayers intentionally fail to cooperate and ignore their tax obligations.

Others fail to make arrangements or do not adhere to the arrangements entered into to pay their tax arrears and lodge tax returns.

In such cases, the FRCS has no other option but to enforce its recovery processes.

Below are the various recovery processes and how it works.

 

Communicating with Debtors

Like any business debt recovery procedure, the initial step is to establish contact and inform the debtor of the tax assessment, amount payable and the due date for payment.

It is also at this stage that we can send the Notice of Assessment [NOA] to the taxpayers via

email.

It is to be noted that the original NOAs are posted to the respective postal address.

Options are given to debtors should they wish to discuss payment options and the debt recovery team are always available to meet with taxpayers to make payment arrangements that work for them.

 

Receiving a Demand Notice for Tax Payment

Once the debt exceeds 30 days, a Tax Demand letter is issued which provides a 14-day timeline for tax debts to be paid in full. Should there be no positive response from the debtors in terms of full settlement, providing an undertaking or to enter into a time to pay arrangement, we will take necessary measures to recover the debt.

If initial recovery measures prove futile, FRCS will have no choice but to engage in more aggressive means of recovery.

The recovery will be based on the assessment of the severity and significance of non-compliance and revenue threat. FRCS will ensure that all its decisions are carried out appropriately and with transparency in accordance with the relevant tax laws.

FRCS ensures that taxpayers are always advised via telephone, personal visit and via email or postal mail before any action is made or in other cases after the recovery process has been done.

 

Statement of Tax Account issued to Taxpayer

As soon as the return of a taxpayer is assessed and the tax payable determined, the taxpayer is advised via the Tax Statement of Account and is allowed 30 days to settle the tax assessed without incurring any late payment penalties.

 

Initial recovery action – Telephone call / meeting

Following the issuance of the Statement of Tax Account, FRCS will follow up with telephone call or email whichever is available as a reminder on the tax debt within a week from when the assessment was raised.

The purpose of the follow up is to inform the taxpayer on the amount of tax debt and when and how the debt is to be paid. If the taxpayer disagrees with the assessment, the taxpayer has the right to object and should lodge a formal objection letter within 60 days from the date of receiving the assessment.

FRCS will ensure that each taxpayer is advised of his/her tax obligations and given the option to work with us to resolve the outstanding tax dues, thus ensuring taxpayers avoid incurring penalties.

Where Accountants, Tax Agents or Lawyers represent taxpayers, the onus and responsibility of clearing the tax debt still lies with the taxpayer and not the agent.

 

Extension of Time to Pay Tax facilitated with Time-To-Pay Arrangements (TTPA)

Time-To-Pay Arrangements are entered into when the taxpayer requests to make installment payments instead of a one off settlement or full payment due to genuine financial constraints. FRCS may grant an extension of time to pay tax, after scrutinising the taxpayer’s financial status and is convinced that the taxpayer is facing genuine financial difficulties and is unable to pay the tax debt at once.

Extension of Time to Pay is granted on the approval of the CEO FRCS and Only authorized personnel at FRCS can sign on the Time-To-Pay Arrangements letters, otherwise it will be considered null and void.

Most TTPAs are to be restricted to 3 to 6 months where the taxpayer will have to settle all debt. Most TTPAs would start with a down payment of a minimum 25 per cent of total tax liability.

 

Garnishee Notice

Garnishee is a legal document which instructs a third party to pay FRCS any monies owing to a taxpayer.

This payment to FRCS is in satisfaction of a debt outstanding at FRCS. Whilst the Garnishee Order is to recover outstanding taxes it is not limited to prior exhaustion of issuance of demand notice or time to pay arrangement.

This is based on risk assessment and risk profiling of cases.

Garnishees can be issued to Employers, Banks, Other Financial Institutions which accept deposits, third parties who hold money for taxpayer e.g. taxpayer’s customers/debtors.

The following sources of funds can be garnisheed: Access /Passbook /Savings Accounts, Fixed Deposits, Joint accounts provided source of income is taxpayer’s income, any deposit into a third party bank account provided income is determined to be taxpayer’s income, Business accounts with overdraft facility, Salaries / Wages, Dividends, Rental Income, Royalty Payments, Directors Fees, Annuities, Any compensation payouts

When FRCS issues a Garnishee notice, the Original is issued to the payer or 3rd party and a copy is issued to the taxpayer.

Garnishees to salary and wages and other remuneration is limited to 20 per cent from each payment. Garnishees will not be revoked without – at least partial upfront payment and an alternative payment arrangement including negotiating a variation on the percentage of fund to remitted by the payer.

 

Charge or caveat on Taxpayer Asset(s)

FRCS may place a charge or caveat on a taxpayer’s assets in lieu of outstanding tax liabilities to secure its tax debts.

Where FRCS has reasonably exhausted other recovery measures and believes that enforcement of the charge (in case of properties) is the suitable way to collect the state debts, the FRCS may apply by petition to the High Court for sale order or appointment of a Receiver.

In the case of movable assets, FRCS can enforce collection of debt by Distress and Sale. FRCS will place a charge or caveat on titles where overdue debt is above $25,000. For Lease Land FRCS will issue the notice to TLTB or Lands Department, notifying the potential FRCS charge.

FRCS may issue a 14 Day Final Notice to the Taxpayer advising them that FRCS will foreclose on the Charge if the amount as stated is not paid within 14 days.

FRCS may also place a LTA Charge on all existing encumbrances pertaining to the motor vehicles of a taxpayer that owes taxes.

Release of the title charges can ONLY be done if all outstanding tax arrears are FULLY cleared by the taxpayer. Where a taxpayer requests for release of Title or LTA charge in order to obtain refinancing to be able to clear tax arrears, the taxpayer has to provide a security such as a Bank Guarantee or Surety witnessed by a Solicitor.

In case of direct sale by the taxpayer to obtain higher sale price advantage, an undertaking by the taxpayer’s solicitors to remit the proceeds from the sale directly to FRCS will be required.

In cases of a forced or mortgagee sale (where FRCS ranking is second), all proceeds in excess of first charge are to be remitted directly to FRCS. Taxpayers can organize with the financial institutions for refinancing the taxpayer’s debt.

 

Departure Prohibition Order (DPO)

A DPO prohibits the debtor from leaving Fiji, regardless of whether the debtor intends to return. By its very nature, a DPO imposes a significant restriction on the normal rights of a debtor and the impact of this restriction on a debtor’s freedom of movement must be recognsed (basically an order deprives debtors of their liberty to travel outside Fiji).

DPO is applicable on both Fiji nationals and foreign nationals who are liable to pay taxes under the Fiji tax laws.

 

Temporary Closure of Business [TCOB]

FRCS may notify taxpayers in writing of the intention to close down the whole or part of the taxpayers’ business unless the taxpayer pays the tax due within a period of seven consecutive days of the date of the notice.

If the notice is not complied with, then FRCS may issue an order to close down the whole or part pf the business for a period of 14 days, and during this time authorized officers of FRCS may at any time enter the premises to execute the order and would be accompanied by a police officer.

The taxpayers’ business premises would be sealed and a visible notice will be affixed to the premises displaying: “CLOSED TEMPORARILY FOR NOT COMPLYING WITH TAX OBLIGATIONS BY ORDER OF THE CHIEF EXECUTIVE OFFICER OF FIJI REVENUE & CUSTOMS SERVICE UNDER SECTION 32 OF THE TAX ADMINISTRATION ACT”.

This order may be revoked is the tax is paid an acceptable payment arrangement is made.

 

Distress and Sale

FRCS can distress and sell goods for settling taxpayers outstanding tax arrears. A Final Notice will be issued before any distress and sale, allowing the taxpayer 7 days to settle or make satisfactory arrangement with FRCS.

Items for distress and sale include – trading stock, business assets and tools of trade of the taxpayer, vehicles, furniture and fittings, equipment, private assets of the taxpayer such as vehicles, household appliances, bedding, clothing and jewellery.

Taxpayer may be given further time to pay the full tax arrears and costs of distress action from the date of the execution of the order to the date of tender advertisement.

The taxpayer may request to enter into a possession agreement, whereby distressed property be allowed to remain in the custody of the taxpayer and delay the sale of the property, whilst the taxpayer settles the tax debt owing. The proceeds from the sale will be used to firstly cover costs of taking, keeping and selling the properties and secondly to reduce the tax debt with the remainder paid to the taxpayer.

Where the proceeds are insufficient to cover tax arrears, further recovery procedures may be undertaken. The taxpayer will be formally advised of the application of the sale proceeds.

 

Recovery from Directors or Controlling Shareholder

In cases where a company becomes insolvent or is liquidated or if an arrangement has been entered into and the company is unable to satisfy current and future tax liability, every person who was a director or controlling shareholder at the time the arrangement was entered into is jointly and severely liable for the tax liability of the company including any penalties relating to the liability.

Feedback: maraia.vula@fijisun.com.fj

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