365
52
HONG KONG LEGISLATIVE COUNCIL
fessional men, has also been considered in this connection, and it is proposed to introduce certain concessions in regard to Business Profits Tax, to which I will refer later.
Section 10(2) of the Inland Revenue Ordinance, which deals with the rental value of a place of residence provided by an employer, has been the source of many complaints, and has also taken up
an amount of time both in the office of the Commissioner of Rating and Valuation and in the Inland Revenue Department, quite out of proportion to the very small amount of revenue derived. It is therefore proposed to simplify this subsection to the advantage of the taxpayer.
Section 6(1) of the Inland Revenue. Ordinance provides that where rents are restricted, Property Tax should be charged at one half the standard rate. It is proposed to continue this concession for the present, but half the standard rate will of course become 7 per cent. instead of 5 per cent.
As these measures have not yet been worked out in full detail, it would only be misleading for me to give you detailed estimates of what they are expected to bring in. They should, however, realize some $12 million, of which some $8 million would be derived from the increase in Corporation Profits Tax.
While on the subject of amendments to the Inland Revenue Ordinance, I may say that the Commissioner of Inland Revenue has made representations in favour of the abolition of the present personal assessment provision contained in Chapter 7. It is of course generally agreed that full personal assessment on all personal income is the most equitable form of direct taxation, but if it is to be equitable, it must be accompanied by the full disclosure of business interests and income from all sources. In Hong Kong, such disclosure would give rise to a number of very serious complications, but on the other hand without these disclosures any system of personal assessment on a voluntary basis merely provides a wide-open door for evasion by the dishonest. By the use of aliases, a business with branches may be split into a number of apparently separate businesses with personal allowances being claimed against each. In fact, cases have arisen in which it has been found that a business has thus been split into, say, four parts, all carried on in one room. By the use of aliases, also, the number of apparent partners may be increased without increasing the actual number. In a recent instance, a business was stated to have twelve partners, but information from another source revealed that there were in fact only three, each of whom used four different names. There are difficulties in regard to the registration of the names of partners in Hong Kong, so it is a simple matter to introduce fictitious ones with a view to the evasion of tax. It is impossible for the Commissioner to detect such evasions with any certainty, since it is known that amongst Chinese family partnerships there are continual and quite honest changes, and there is no means of distinguishing between
HONG KONG LEGISLATIVE COUNCIL
the honest and the dishonest. Similarly it has been found that resident persons have been introduced as partners, whereas in fact they are merely nominees of non-resident partners who are not entitled to personal allowance. It has also been noticed that the number of partners in many cases tend to go up or down according to the rise and fall in profits. There is a fur- ther objection to the grant of a right to personal assessment in system of taxation which does not tax income received from outside the territory. There are many cases in which people are supported by income received from outside the Colony. Under the present system of personal assessment, full allowances in respect of these dependants are made against income arising inside the Colony, despite the fact that such income may not be used for their support. This is particularly the case with many Chinese family businesses which are run in conjunction with interests in the neighbouring areas of China.
If Chapter 7 of the Inland Revenue Ordinance is to be repealed, some compensation must clearly be given for the with- drawal of these rights, and it is proposed to meet both this and the need to soften the impact of the increased rate on individuals in trade or business or the professions, to which I have already referred, by applying rebates to profits below a certain figure.
If the proposed amendments to the Inland Revenue Ordin- ance receive the approval of this Honourable Council when they are introduced in some weeks' time, revenue will again be adequate to balance expenditure, and depending on the exact form in which the amending Ordinance is enacted, there should be a nominal surplus of several million dollars, from which we can meet the two indeterminate liabilities which I have already mentioned.
The expenditure figure has again risen $13 million over the revised estimate for 1949/50, which was itself in excess of the approved estimate. A large part of the increase is, however, accounted for by the much more extensive programme under Public Works Non-Recurrent, which is to cost some $8 million more than last year. In addition to this, it has been necessary to provide for equipment costing nearly $1 million under Public Works Special Expenditure, and an additional $4 million under Public Works Recurrent. There has also been an increase in the Police vote of $3 million.
There is a crumb of comfort in the fact that the increases have occurred principally in Public Works expenditure. This
is the least dangerous form of increase, in that it can be cur- tailed at any moment. It is when the rise occurs in normal departmental expenditure that it becomes a matter of much greater concern, for then it can only be curtailed by extensive retrenchment of staff. The importance of keeping normal departmental expenditure to the lowest level consistent with efficiency has constantly been urged on Heads of Departments, and all estimates have been very carefully scrutinized.
366
No comments yet.
Private notes are available after approval.