THE ECONOMY
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Profits tax is paid initially on the basis of profits made in the year preceding the year of assessment and is subsequently adjusted according to profits actually made in the assessment year. Generally, all expenses incurred in the production of assessable profits are deductible. There is no withholding tax on dividends paid by corporations. Interest income, other than that received by financial institutions, and dividends received from corporations are exempt from profits tax. In 1998-99, the Government received about $45.3 billion in profits tax, or about 21 per cent of total revenue.
Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and method of payment (including provisional payments) are similar to the system for profits tax. Tax payable is calculated on a sliding scale which progresses from 2 per cent, 7 per cent and 12 per cent on the first, second and third segments of net income (that is, income after deduction of allowances) of $35,000 each, respectively, and then to 17 per cent on the remaining net income. No one, however, needs to pay more than 15 per cent of his or her total income. The earnings of husbands and wives are reported and assessed separately. However, where either spouse has allowances that exceed his or her income, or when separate assessments would result in an increase in salaries tax payable by the couple, they may elect to be assessed jointly. Salaries tax contributed some $25.1 billion, or about 12 per cent of total revenue, in 1998–99. Owing to generous personal allowances under Hong Kong tax law, about 58 per cent of the SAR's workforce has no salaries tax liability at all.
Owners of land or buildings in Hong Kong are charged property tax at the standard rate of 15 per cent of the actual rent received, less an allowance of 20 per cent for repairs and maintenance. There is a system of provisional payment of tax similar to that for profits tax and salaries tax. Property owned by a corporation carrying on a business in Hong Kong is exempt from property tax (but profits derived from ownership are chargeable to profits tax). Receipts from property tax totalled about $1.3 billion in 1998-99.
The Stamp Duty Ordinance imposes fixed and ad valorem duties on different classes of documents relating to assignments of immovable property, leases and share transfers. The revenue from stamp duties accounted for about 5 per cent of total revenue, or about $10.2 billion, in 1998-99.
A duty is imposed on bets at the Hong Kong Jockey Club and on the proceeds of Mark Six lotteries the only legal forms of betting in Hong Kong. The rate of duty is 12 per cent or 19 per cent of the amount of the bet (depending on the type of bet placed) and 25 per cent on the proceeds of lotteries. The yield in 1998-99 totalled some $12.2 billion, and accounted for about 6 per cent of total revenue.
Estate duty is imposed on estates valued at over $7.5 million, at levels ranging from 5 per cent to a maximum of 15 per cent, while a hotel accommodation tax of 3 per cent is imposed on expenditure on accommodation by guests in hotels and guesthouses.
Under the Dutiable Commodities Ordinance, duties are levied on only four types of commodities hydrocarbon oil, alcoholic beverages, other alcohol products (i.e. methyl and ethyl alcohol) and tobacco. The Customs and Excise Department collects duties on these products irrespective of their geographical origin. In 1998–99, the department collected duties worth $7.7 billion or about 3 per cent of total revenue.