Last week the Fiji Times finally reported on the ongoing saga of a tax consultant working for FIRCA who apparently has not paid any tax on his consultancy fees. What we cannot understand was why FIRCA was not practising what it preaches by applying a witholding tax on foreign consultants invoices.
From my own experience, any consultant hired, it is a requirement of Immigration and FIRCA that a witholding tax is paid upfront before working visas can be granted. If this was overlooked, then FIRCA could have done the simply thing and deduct tax at source.
Well here is Part 1 of Victor Lal’s investigative journalism published in the Fiji Sun in February. This has been reproduced here so we shall not forget and loose sight of how messed up this country has become and there is indeed no honour among thieves.
A Fiji Islands Revenue and Customs Authority tax consultant had failed to declare $629,481.00 in consulting fees from the Reserve Bank of Fiji and FIRCA over the period June 2004 to October 2007, it has emerged. As a result, FIRCA was taxed for failing to deduct 15 per cent tax from his fees of $72,860.00 and the RBF $21,556.00 from these fees. The consultant’s assessment allegedly still stood, as of last month, with additional penalties for late payment now amounts to $154,00.00.
According to a FIRCA source, speaking to me on condition of anonymity, the Debt Management Section has been ordered not to collect the debt, although the staff do not approve of the directive, as they will be held accountable by the Auditor-General if they gave preferential treatment to the tax consultant.
As I pointed out in the case of the FIRCA Board member who was caught out in the property tax scam, in September 2007, a directive was issued that all senior FIRCA staff be audited. On 5 November the auditing officer sent an internal letter to the consultant, and seen by me, in which he pointed out to him that, “A review of your tax affairs has been conducted and it has been determined that you have failed to lodge returns in Fiji and disclose consulting income received from FIRCA and the Reserve Bank”.
He was also informed that, “Assessments have been raised to assess you on this income under section 11 of the Income Tax Act, including an advance assessment for 2007 year-to-date. These assessments should reach you shortly under separate cover”.
According to the 5 December letter, the amount of income assessed were as follows: 2004, grossed up fees (GUF), $111,164, 15% tax, $16,674, and net fees received (NFR) $94,490; for 2005, GUF, $178,093, 15% tax, $26,712, and NFR, $151,381; 2006, GRF, $204,293, 15% tax, $30,642, and NFR, $115,543; and for 2007, GUF, $135,931, 15% tax, $20,388, and NFR, $115,543.00. The total GUF was $629,481.00, 15% tax was $94,416.00 and NFR was $535,065.00.
The fees received, the letter noted, which should have been subject to 15 per cent provisional tax, “have been grossed up and a credit allowed for the tax”. The consultant was informed that payment of the tax for 2004 and 2007 would be enforced on FIRCA and the RBF. The above amounts had been assessed at non-resident rates. Tax had only been assessed on fee income, not reimbursement of expenses. The consultant was also informed that a penalty of 25 per cent of the omitted income had been imposed on him.
As the consultant was a resident of a neighbouring country for tax purposes, the Double Tax Agreement (DTA) between Fiji and that country had also been applied, he was told. Article 12 of the Agreement allows Fiji to tax such payments as relating to services performed in Fiji. Under Article 20(2) of the agreement, the consultant was reminded, he “may be allowed a credit for tax” in his own country. FIRCA was willing to provide receipts of tax paid and, if required, a letter to facilitate the claiming of credit in his country. The consultant was given 60 days to lodge an objection against the assessments from the date they were made.
Earlier, on 31 October 2007, the assessing officer had already informed in an internal memo (also seen by me) to another department within FIRCA that further to their meeting the previous day with the acting CEO Jitoko Tikolevu, could “you arrange for the following assessments to be raised”. The internal memo stated that the tax consultant had failed to lodge returns disclosing his income from FIRCA and RBF. This income was taxable under section 11, and because the consultant was resident abroad for tax purposes, the DTA should be consulted.
The assessment officer noted that as no tax was deducted at source, the amounts had to be grossed up. The consultant’s income for the years 2004 to 2007 were as follows: GFU: $485,761.00, 15% tax was $72,860.00 and NFR totalled $412,899.00. According to the memo the RBF income (excluding phone/fax reimbursements in 2004 of $568) was also spelled out in detail for the years 2004-2007: GUF, $143,720.00, 15% tax was $21,556.00 and NFR was $122,164.00. The consultant’s total income was as follows: GUF, $629,481.00, 15% tax was $94,416.00 and NFR was $535,065.00.
The 31 October 2007 memo advised that the consultant should be taxed at the non-resident rate of $629,481.00. He should be allowed a credit for the 15 per cent tax ($94,416), which would be assessed to FIRCA and RBF. Assessment should be raised for 2004, 2005, 2006 and an advance assessment for 2007, the memo recommended. A 25 percent omitted income penalty was to be imposed. This may be waived, the memo recommended, during the tax amnesty that had been announced by Finance Minister Mahendra Chaudhry whose portfolio includes FIRCA.
The memo re-iterated that FIRCA had failed to deduct 15 per cent provisional tax from payments made under a contract for services with the consultant. The amounts to be assessed for the years 2004 to 2007 was to be $72,860.00, and 25 per cent omitted income penalty should be imposed, which could be waived during the amnesty period. The assessing officer noted that he was going to write to the CEO of FIRCA explaining the basis of the above.
The officer also pointed out that the RBF had failed to deduct the 15 per cent provisional tax from payments made under a contract of services, which came to $21,556.00. As a result the assessing officer was also going to write to the Governor of the Reserve Bank of Fiji explaining the basis of the above sum.
But how did the tax consultant react to the assessment? Suffice to note; according to his letter of 8 November 2007 to the assessment officer, he claimed that it was “unfair, oppressive and abusive to seek to impose double taxation”.
The tax consultant’s response was quite contrary to the response of the FIRCA Board member who, on getting his refund on the rental loss, had thanked the assessing officer on 2 October 2007 for fast-tracking the refund and putting the monies into the couple’s designated bank accounts.
Surprisingly, the Board member actually supported the assessments of the tax consultant because, according to a FIRCA source, he was afraid of any negative publicity if they were withdrawn and the assessing officer was not seen to be “independent”. He was also afraid of being exposed over his own attempted property scam a month earlier during the general auditing of the FIRCA staff.