62 The Economy
and Table 8, the growth rate of public expenditure as compared with the rate of economic growth.
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 (25 per cent), salaries tax (13 per cent) and land premiums (13 per cent). Other significant sources include revenue from stamp duties (9 per cent), properties and investments (8 per cent), utilities, fees and charges for services provided by the Government (5 per cent), general rates (5 per cent), bets and sweeps tax (4 per cent), and duties on dutiable commodities (2 per cent). These major sources of revenue are presented at Appendix 6, Chart 1.
The Inland Revenue Department collects about 54 per cent of total revenue, including profits tax, salaries tax, property tax, stamp duties, bets and sweeps tax, estate duty, and hotel accommodation tax. Profits, salaries and property taxes (including tax under personal assessment), which together accounted for about 40 per cent of total revenue in 2006-07, 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 or derived from Hong Kong, from a trade, profession or business carried on in Hong Kong. In 2006-07, profits of unincorporated businesses were taxed at 16 per cent and profits of corporations at 17.5 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 2006-07, the Government received about $71.9 billion in profits tax (about 25 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 in 2006-07 was calculated on a sliding scale that progressed from 2 per cent, 7 per cent and 13 per cent on the first, second and third segments of net income (that is, income less deduction and allowances) of $30,000 each, respectively, and then to 19 per cent on the remaining net income. No one, however, needed to pay more than the standard rate of 16 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 $38.6 billion (about 13 per cent of total revenue) in 2006-07. Owing to the