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The Economy
Future Fund
The Future Fund was set up on 1 January 2016 with an initial endowment of $219.7 billion for placement in longer-term investments, to secure higher returns for the fiscal reserves. As from 1 July 2016, it also includes $4.8 billion, being one-third of the 2015-16 surplus as a top-up. This is part of fiscal measures to cope with foreseeable long-term fiscal challenges arising from an ageing population and slower economic growth.
The Future Fund is being placed with the Exchange Fund for an initial period of 10 years from 1 January 2016 to 31 December 2025. Investment returns arising from the Future Fund during the placement shall be retained by the Exchange Fund for reinvestment. Interest on the placement shall be paid to the government upon completion of the placement period or on a date as directed by the Financial Secretary.
Revenue Sources
Hong Kong's tax system is simple. 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 (31 per cent), stamp duties (14 per cent), land premium (14 per cent) and salaries tax (13 per cent). All major sources of revenue are presented in chart 1 of Appendix 6.
The Inland Revenue Department collects about 65 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, are levied under the Inland Revenue Ordinance and together accounted for about 46 per cent of total government revenue in 2015-16.
Profits tax is charged only on profits arising in, or derived from, Hong Kong from a trade, profession or business carried on within the territory. In 2015-16, 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 later adjusted according to the actual profits 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 from deposits placed with banks or deposit-taking companies, other than that received by financial institutions, and dividends received from corporations are exempt from profits tax. In 2015-16, the profits tax collected was about $140.2 billion, making up about 31 per cent of total government revenue.
Salaries tax is charged on emoluments arising in or derived from Hong Kong. As with profits tax, a provisional tax mechanism is in place. Salaries tax is calculated at progressive rates on the net chargeable income, which is income less deductions and allowances. In 2015-16, 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 remainder at 17 per cent. No one, however, need to pay more than the standard rate of 15 per cent of their 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 that spouse's income, or when separate
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