TAX TALK – TAX RECOVERY MEASURES

In today’s evolving commercial landscape, it is important that business and individuals are aware
of their tax obligations. The onus is on organizations to be accountable in reporting their tax
obligations while at the same time ensuring that the true potential of their business is recognized
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.

This week we will look into 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 scrutinizing 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% 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% 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 recognized (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 7 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 jewelry.

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.