The Economy 69
stamp duties (14 per cent) and salaries tax (12 per cent). All major sources of revenue are presented at Appendix 6, Chart 1.
The Inland Revenue Department collects about 56 per cent of total government revenue, including profits tax, salaries tax, property tax, stamp duties and bets and sweeps tax. Profits, salaries and property taxes (including tax under personal assessment), which together accounted for about 38 per cent of the total government revenue in 2010-11, are levied under the Inland Revenue Ordinance.
Profits tax is charged only on profits arising in or derived from Hong Kong, from a trade, profession or business carried on in Hong Kong. In 2010-11, profits of unincorporated businesses were taxed at 15 per cent and profits of corporations at 16.5 per cent.
Profits tax is charged provisionally on the basis of profits made in the year preceding the year of assessment and is subsequently adjusted according to the 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 2010-11, the total profits tax collected was about $93.2 billion (about 25 per cent of total government revenue).
Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. Same as profits tax, a provisional tax mechanism is in place. Salaries tax is calculated at progressive rates on the net chargeable income (i.e. income less deductions and allowances). In 2010-11, the first, second and third segments of net chargeable income of $40,000 each were taxed at 2 per cent, 7 per cent and 12 per cent respectively, and the remaining at 17 per cent. No one, however, needed to pay more than the standard rate of 15 per cent of his or her total income after deductions.
The earnings of husbands and wives are reported and assessed separately. However, where the deductions and allowances of either spouse exceed his or her income, or when separate assessments would result in an increase in their total salaries tax payable, the couple, may elect to be assessed jointly. Salaries tax contributed some $44.3 billion (about 12 per cent of total government revenue) in 2010-11. Owing to the generous personal allowances under the Hong Kong tax law, only about 1.4 million people or 40 per cent of the workforce were liable to salaries tax for the year of assessment 2009-10.
Owners of land and buildings in Hong Kong were charged to property tax in 2010-11 at the standard rate of 15 per cent on the actual rent received after 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. Properties owned by a corporation carrying on a business in Hong Kong are exempt from property tax, but the profits it derived from the properties are chargeable to profits. tax. Property tax contributed some $1.6 billion (about 0.4 per cent of total government revenue) in 2010-11.
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70 The Economy