(17865) Dd.145178 400m 5/73 G.W.B.Ltd. Gp.863
NOTHING TO BE WRITTEN IN THIS MARGIN
CONFIDENTIAL
6. How can this additional expenditure of HK$2100 million be financed? The Governor suggests in his Despatch that the room for manoeuvre in further recourse to borrowing is very limited, whilst the reserves currently amount to some HK$2600 million only (about 35% of General Account expenditure for 1976/77). It could well be necessary, therefore, to raise taxation - from its present low levels. By how much would the standard rate of Earnings and Profits Tax have to be increased?
The figure of about HK$2100 million represents the increase
on the Consolidated Account. If this is assumed to be 15% higher than the equivalent on the General Revenue Account (question 1), then the increase to be borne by general revenue amounts to about HK$1800 million (about HK$540 million in 1978/79 and
HK 1260 million in 1979/80). Given that the standard rate of Earnings and Profits Tax is already equivalent to about 15% on
the assumption that dividends are brought into charge to tax and that the (temporary) surcharge of 2 percentage points on corporation profits is consequently discontinued, the rate would need to be increased to 18% in 1978/79 and about 21% in 1979/80:
(HK million at 1976 prices
unless otherwise stated)
76/77
77/78
78/79
79/80
Gross domestic product
39,317
42,162
44,902
47,822
(8.6%)
(7.2%)
(6.5%)
(6.5%)
(Increase on previous
year)
Revenue on General Account
from Earnings & Profits Tax:
at 15%
at 18% at 21%
Difference
Revenue sought
*
2428
2603
2772
2952
X
3326
(3526*)
4231*
554
1279
540
1260
*
as per Statistical Appendices to Budget, adjusted for revenue proposals in Budget speech.
+ yield for previous year increased by lower of the GDP
growth rates for current and preceding years.
x assuming no change in income brought into charge to
tax at 15%.
CONFIDENTIAL