68 | The Economy
The Rating and Valuation Department is also responsible for the billing and collection of government rent, which is payable from July 1, 1997, for land leases granted on or after May 27, 1985, and on the extension of non-renewable land leases. The latter group comprises all land leases in the New Territories and New Kowloon, north of Boundary Street, which were renewed on June 28, 1997. Government rent is levied at 3 per cent of the rateable value of the lot and is adjusted in step with any subsequent changes in the rateable value. There were about 1.64 million assessments in the Government Rent Roll as at March 31, 2005. The total government rent collected in 2004-05 was $3.9 billion.
The Government derives significant amounts of revenue from other sources. Fees and charges for services provided by government departments generated about $10.8 billion, or 4 per cent of total revenue, in 2004-05. It is government policy that fees, in general, should be set at levels sufficient to recover the full cost of providing the services. Certain essential services are, however, subsidised by the Government or provided free of charge. Government-operated public utilities generated about $3.4 billion, which accounted for about 1 per cent of total revenue; the most important of these, in revenue terms, is water charges.
The Government also collected $14.7 billion from investments and interest income on the fiscal reserves in 2004-05, amounting to about 6.2 per cent of the total revenue.
Lastly, some $32 billion, or about 13.4 per cent of the total revenue in 2004-05, was generated from land transactions. All revenue from land transactions is credited to the Capital Works Reserve Fund to help finance the Public Works Programme.
Need to Broaden Tax Base
The Government recognises that the tax base of Hong Kong is very narrow and there is a need to broaden it to enhance the health of our public finances.
Out of a working population of some 3.23 million for the year of assessment 2003-04, only 1.16 million had to pay salaries tax. Of these, the top 100 000 taxpayers contributed some 61 per cent of the salaries tax. As for profits tax, the top 600 corporations, which represent only about 1 per cent of the total number of profit-making corporations, contributed 60 per cent. Compared with other overseas developed economies, Hong Kong is more reliant on profits tax and real property- related taxes or non-tax revenue. Since revenue from these sources is sensitive to economic fluctuations, the Government has decided that it should broaden the tax base to ensure a steady source of income to meet public expenditure needs.
A Goods and Services Tax (GST) is considered a viable option to broaden the tax base. An internal study committee, set up by the Government, has carried out a study on how GST would be implemented in Hong Kong. Overseas experience has found that the effects of GST on the economy are generally limited and short-term. Over the long term, GST can enhance the competitiveness of the economy and stabilise government finances. The Government aims to engage the whole community in rational and constructive discussion before a decision is taken on whether we should have GST.