Question 4 (17 marks)

Mr. Wong is carrying on business in Hong Kong as a sole-proprietor selling furniture. In January 2020, he received a letter from the IRD enquiring about a sale transaction that has not been reported in his tax return for the year of assessment 2018/19. The transaction represents an income of $50,000 received in cash from an Internet sale to a customer in Singapore. In his defence, Mr. Wong replied that he knew nothing about accounting and tax rules and placed full reliance on his accountant.

Required:

(a) Advise Mr. Wong of any possible penalty and prosecution action that could be taken against him by the IRD in relation to the non-reporting of income. (10 marks)

(b) Assume that Mr. Tam is the independent tax consultant appointed by Mr. Wong to provide him with tax advice for handling the enquiry letter issued by the IRD. Discuss the ethical considerations Mr. Tam should be aware of in the course of providing the tax consultancy services to Mr. Wong. (7 marks)

(Total for Question 4: 17 marks)