THE ECONOMY
concessionary terms to build public housing for rent and for sale. The authority's recurrent expenditure, for clearances and squatter control is financed from the General Revenue Account.
A trading fund is a department or part of one- providing services on a commercial or quasi-commercial basis through the operation of a separate accounting system. Unlike a vote-funded department, trading funds are allowed to retain revenue generated to meet expenditure in providing the services and to finance future expansion.
Revenue Sources
Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, and the Government accords a high priority to curbing tax evasion and minimising opportunities for tax avoidance. The major sources of revenue are profits. tax, salaries tax, investment returns as well as revenue from land transactions. Other significant sources include rates, stamp duty on property and stock transactions, betting duty, fees and charges for services provided by the Government and duties on certain specified commodities. (For major sources of revenue, see Appendix 16).
The Inland Revenue Department collects about 45 per cent of total revenue, including profits and salaries taxes, stamp duty, betting duty, estate duty and hotel accommodation tax. Profits and salaries taxes, which together accounted for about 33 per cent of total revenue in 2000-01, are levied under the Inland Revenue Ordinance. Persons liable to these taxes may be assessed on three separate and distinct sources of income: business profits, salaries and income from property.
Profits tax is charged only on net profits arising in Hong Kong, or derived from a trade, profession or business carried on in Hong Kong. At present, profits of unincorporated businesses are taxed at 15 per cent and profits of corporations at 16
per cent.
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 2000–01, the Government received about $43 billion in profits tax, or about 19 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 that 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 the standard rate of 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 $26.3 billion, or about 12 per cent of total revenue, in 2000-01. Owing to generous personal
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