FINANCIAL SYSTEM AND ECONOMY
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the accommodation charges paid by guests. For the 1980-1 financial year the anticipated yield is $43 million.
Inland Revenue Ordinance
Earnings and profits tax is charged on four separate and distinct sources of income with a provision for certain taxpayers to elect to have a 'personal assessment' made on their total income. The four sources of income are business profits, salaries, property and interest. Tax is payable only on income arising in, or derived from, Hong Kong. The current standard rate of 15 per cent has been in force since April 1, 1966.
Profits tax is charged on profits arising in, or derived from, Hong Kong from a trade or business carried on in Hong Kong. Profits of unincorporated business are taxed at 15 per cent and corporations at 17 per cent. Assessable profits are determined on the actual profits for the year of assessment, coupled with a system of provisional payment of tax based on the profits of the preceding year of assessment. Generally, all expenses incurred in the production of assessable profits are deductible, as are charitable donations to the extent of 10 per cent of net assessable profits. There is no withholding tax on dividends paid by corporations and dividends received from corporations are exempt.
Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. Assessable income is determined on the basis of actual income for the year of assessment, coupled with a system of provisional payment of tax based on the income of the preceding year of assessment. Tax payable is calculated on a sliding scale which varies from five per cent to 25 per cent on $10,000 segments of assessable income, that is, income after the deduction of personal allowances. However, the overall effective rate is limited to a maximum of 15 per cent of income before the deduction of personal allowances. These allowances are: for the taxpayer $12,500; for his wife $12,500; for his children a maximum of $21,000 (ranging from $5,000 for the first child to $1,000 for the ninth); and $5,000 for each of his, or his wife's, dependent parents. In the 1979-80 year of assessment, additional personal allowances of $2,500 and $5,000 were extended to single and married taxpayers, respec- tively, without any abatement as in the previous year. Apart from the deduction of expenses necessarily incurred in the production of income, and charitable donations up to 10 per cent of taxable income, there are no other allowances.
Property tax is charged at the standard rate of 15 per cent on the owner of land and/or buildings in Hong Kong by reference to estimated rental value. There are exemptions, in- cluding property occupied by an owner for his residential purposes, vacant premises and property in certain undeveloped parts of the New Territories. Property owned by a corpora- tion carrying on business in Hong Kong is exempt from property tax because the profit derived from the ownership is chargeable to profits tax.
Interest tax is normally deducted at source through a withholding system at 15 per cent on interest arising in, or derived from, Hong Kong. Interest in the hands of a corporation carrying on business in Hong Kong is chargeable to profits tax because it is deemed to be part of the profits of the corporation. Interest paid by the government, and by licensed banks and specified utilities is exempt unless it exceeds specified rates which vary from time to time.
Personal assessment is a form of relief under which taxpayers with earnings and profits, normally chargeable at the standard rate for each separate source, may elect to be assessed on their total Hong Kong income. The advantages of personal assessment disappear when tax at the sliding scale on total income (after personal allowances) exceeds tax at the standard rate on total income (before personal allowances).