The Economy
against the background of a medium range forecast to ensure that full regard is given to the longer-term trends in the economy.
A government department can only incur expenditure up to the amounts stated in the expenditure estimates and for the purposes approved by the Legislative Council. If during the financial year (which runs from 1 April to 31 March) a department needs to change the expenditure estimates and spend more money, it must obtain authorisation from the Legislative Council.
The Government controls its finances through the General Revenue Account (GRA) and various funds established under the PFO. The GRA is the main account for day-to-day departmental expenditure and revenue collection. Funds established under the PFO are the Bond Fund, the Capital Investment Fund, the Capital Works Reserve Fund, the Civil Service Pension Reserve Fund, the Disaster Relief Fund, the Innovation and Technology Fund, the Land Fund, the Loan Fund and the Lotteries Fund. The total revenue and expenditure of the GRA and all these funds except the Bond Fund represent government revenue and government expenditure, and the total balance of the GRA and the funds except the Bond Fund constitutes government fiscal
reserves.
Financial Results
For 2011-12, the Government recorded a surplus of $73.7 billion. Fiscal reserves at the end of March 2012 stood at $669.1 billion. Government revenue in 2011-12 amounted to $437.7 billion and expenditure $364 billion. For details of revenue by source and of expenditure by component for 2011-12 and 2012-13 (Revised Estimate) see Appendix 6, Table 6.
Public expenditure comprises government expenditure and expenditure by other public bodies. In 2011-12, public expenditure totalled $385.6 billion, an increase of 20.3 per cent over the previous year, within which some $257.2 billion (or 66.7 per cent) was of a recurrent nature. Table 7 gives an analysis of public expenditure by policy area group 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 tax rates and the cost of administration are low. To protect tax revenue, the Government takes vigorous measures to combat tax evasion and prevent tax avoidance. The major sources of revenue include profits tax (27 per cent), land premium (19 per cent), salaries tax (12 per cent) and stamp duties (10 per cent). All major sources of revenue are presented at Appendix 6, Chart 1.
The Inland Revenue Department collects about 54 per cent of total government revenue, including profits tax, salaries tax, property tax, stamp duties and betting and sweeps tax. Profits, salaries and property taxes (including tax under personal assessment), which together accounted for about 40 per cent of the total government revenue in 2011-12, 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 2011-12, profits of unincorporated
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