t
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(a)
a lump
sum
(b)
3
calculated
by multiplying the
officer's annual
appropriate to
salary by a factor actuarially
his age and length of service
subject to an
overall
maximum ceiling of 4.76
times the annual value of the Master Pay Scale
Point 48 (now Point 45 of the revised MPS);
on
retirement, payment of the officer's earned
in the case of officers
pension benefits with,
below the age of 55, an enhanced factor for the
commutation of pensions.
5.
contained
Annex A (Annex A).
The compensation
and
commutation
factors are
in the tables I to III in the Appendix to the LCS
When the scheme was introduced in 1987 it was
estimated that about 100 officers, mainly in the Police
Force and the Administrative Service, would be affected and
the cost of the proposal would be around $100m at 1987-88
So far a total of 16 officers have been retired
under the LCS at a cost of a total of $17.1 million.
prices.
Tax Issue
6.
Under existing legislation, compensation paid to
directed to retire is exempt from tax.
officers who are
This is because the lump sum payment can be regarded as
compensation
for loss of office or employment and would not
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Annex B
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4
be chargeable to Hong Kong
salaries tax.
However,
compensation for officers superseded for promotion and who
remain in the service is prima facie chargeable to salaries
tax as it cannot be regarded as compensation for loss of
also applies to
office or
employment.
This
principle
officers who are superseded for promotion and who make
application to retire under the scheme as the compensation
could still not be regarded as compensation for loss of
office or employment.
7.
all
In order to achieve the original intention that
compensation paid to officers under the LCS should be
tax free, there is a need to gross up the compensation for
officers who are superseded for promotion to facilitate
localisation to cover their tax liability. It is proposed
factors at Tables IA and IB of the
that the
compensation
Appendix to Annex A be grossed up by the standard tax rate
of 15%. Revised tables are at Annex B.
FINANCIAL IMPLICATIONS
8.
promotion
To date, there have been no supersessions for
under the LCS. It is estimated about 30 staff
compensated on supersession for promotion
may have to be
between now and June 1997. The additional expenditure on
compensation for
supersession
would be recovered as tax
revenue.
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