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WEDNESDAY, FEBRUARY 19, 1992
ANY
SYSTEM HAS LIMITATIONS AND CONSTRAINTS.
HONG KONG IS OF
COURSE NO EXCEPTION. THERE IS, FOR EXAMPLE, INCREASING CONSENSUS ABOUT THE DESIRABILITY OF BROADENING THE TAX BASE TO PROTECT OUR REVENUE AGAINST AN UNFORESEEN ECONOMIC DOWNTURN. AT THE SAME TIME, WE MUST BE PRAGMATIC ABOUT THIS. I HAVE MADE IT CLEAR, FOR EXAMPLE, THAT FURTHER CONSIDERATION OF THE DESIRABILITY OF A GENERAL SALES TAX MUST AWAIT A TIME WHEN INFLATION NO LONGER POSES A SIGNIFICANT THREAT TO THE LIVELIHOOD OF ORDINARY FAMILIES. SIMILARLY, THE GOVERNMENT IS WELL AWARE OF THE NEED TO PLUG AVOIDANCE LOOPHOLES CREATED BY THE INCREASING COMPLEXITY OF MODERN BUSINESS PRACTICE. IN SHORT, OUR SYSTEM OF TAXATION IS BASICALLY WORKING WELL. UNDER THESE CIRCUMSTANCES, A NEW, GENERAL REVIEW DOES NOT SEEM NECESSARY.
HOWEVER, MY CONCERN IS MORE FUNDAMENTAL THAN THIS. I BELIEVE THAT A REVIEW AT THE PRESENT TIME WOULD HAVE REAL DISADVANTAGES FOR HONG KONG. INVESTOR CONFIDENCE IN HONG KONG IS NOW HIGH, AND IT IS CRITICAL THAT IT REMAINS SO AS WE DEVELOP OUR SOCIAL AND PHYSICAL INFRASTRUCTURE IN THE YEARS LEADING UP TO 1997. ANY - NEW REVIEW COMMITTEE WOULD TAKE AT LEAST A YEAR TO FORMULATE ITS CONCLUSIONS. THESE WOULD TAKE PLACE AMIDST CONTINUING PUBLIC DEBATE, AND WOULD ALMOST GERTAINLY THEN NEED TO BE SUBJECT TO PUBLIC CONSULTATION. SEVERAL YEARS COULD ELAPSE BEFORE FINAL DECISIONS WERE MADE. IT WOULD BE IRRESPONSIBLE OF ANY GOVERNMENT TO CREATE SUCH A PROTRACTED PERIOD: OF UNCERTAINTY OVER AN ISSUE CRUCIAL TO INVESTOR CONFIDENCE, IN THE ABSENCE OF CLEAR INDICATIONS THAT THERE ARE MAJOR FLAWS IN THE EXISTING SYSTEM. AS I HAVE EXPLAINED, THE REVERSE IS THE CASE.
I TURN NOW TO MR. FUNG KIN-KEE'S PROPOSED AMENDMENT TO MR. LI'S MOTION, MR. FUNG SUGGESTS THAT ONE OF THE OBJECTIVES OF THE REVIEW SHOULD BE TO REDUCE THE TAX BURDEN OF THE LOWER AND MIDDLE INCOME GROUPS. TO TALK OF THEM AS VICTIMS IN RELATION TO OUR TAX SYSTEM SEEMS, TO ME, TO STRETCH POETIC LICENCE TO ITS LIMIT. A MORE CAREFUL EXAMINATION OF THE PRESENT POSITION BRINGS MR. FUNG'S SUGGESTION INTO SERIOUS QUESTION.
LOOKING AT DIRECT TAXATION FIRST, WELL OVER HALF OF THE WORKING POPULATION OF HONG KONG IN FACT PAYS NO DIRECT TAX AT ALL. OF THOSE WHO ARE LIABLE FOR SALARY TAX IN 1991-92, ONLY 100,000 PAY TAX AT THE STANDARD RATE OF 15%. THIS SMALL GROUP OF TAXPAYERS WILL CONTRIBUTE 56% OF ALL SALARIES TAX YIELD THIS YEAR.
SIMILARLY, INDIRECT TAXES ARE NOW IMPOSED ON SOME MAINLY LUXURY PRODUCTS, CERTAIN GOVERNMENT SERVICES AND ON PROPERTY. THE TOTAL INDIRECT TAX BURDEN, INCLUDING RATES, NOW MAKES UP ONLY A FEW PERCENT OF THE INCOME OF AN AVERAGE HOUSEHOLD. THUS IT IS CLEAR THAT, FAR FROM DISCRIMINATING AGAINST LOWER OR MIDDLE INCOME GROUPS, OUR PRESENT SYSTEM OF TAXATION PRINCIPALLY AFFECTS THE MOST PROSPEROUS SECTION OF THE COMMUNITY.
MR
LI HAS SUGGESTED A "BROADLY-BASED" REVIEW COMMITTEE. THE IMPLICATION MAY BE THAT, HOWEVER SUCCESSFUL THE GOVERNMENT'S TAXATION POLICY MAY BE IN FISCAL TERMS, THE CHANNELS FOR REFLECTING OPINION TO THE GOVERNMENT ARE INADEQUATE.
/ONCE AGAIN