XN000022-1974-08-14 — Page 23

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VEDNESDAY, AUGUST 14, 1974

WITHHOLDING TAX ISSUE RAISED IN COUNCIL

THE FINANCIAL SECRETARY, MR. PHILIP HADDON-CAVE SAID TODAY THAT THE ABOLITION OF THE WITHHOLDING TAX WOULD RESULT IN A CONSIDERADLE LOSS OF REVENUE WHICH WOULD 11AVE TO BE MADE GOOD BY HIGHER RATES OF OTHER TAXES OR SOME OTHER LEVY.

HE STRESSED THAT ALTHOUGH COVERNMENT WAS PERFECTLY WILLING TO RECONSIDER THE ABOLITION OR PARTIAL ABOLITION OF INTEREST TAX, HE VAS SURE THAT IN THE ABSENCE OF FRESH ARGUMENTATIONS GOVERNMENT'S CONCLUSION ON THIS ISSUE WOULD HOT DIFFER FROM THOSE IN THIS YEAR'S EUDGET SPEECH.

THE FINANCIAL SECRETARY WAS REPLYING TO A QUESTION RAISED AT THE LEGISLATIVE COUNCIL BY THE HCN. NOCER LOCO WHO ASKED IF THE GOVERNMENT COULD RE-CONSIDER THE ACOLITION OF INTEREST TAX.

MR. HADDON-CAVE SAID HE SAU HO REASON WHY INCOME IN THE FORM OF INTEREST SHOULD BE TREATED CORE GENEROUSLY THAN THE THREE OTHER FORMS OF INCOME WHICH WERE SUBJECT TO TAX UNDER THE INLAND REVENUE ORDINANCE.

HE POINTED OUT THAT ABOLITION OF INTEREST TAX VOULD LEAD TO A LOSS IN GOVERNMENT REVENUE WHICH, IN 1973-74 ArOUNTED TO $75 MILLION. RECEIPTS FROM INTEREST IN 1974-75 VERE NOW EXPECTED TO BE IN THE REGION OF $100 MILLION.

+IF THE GOVERNMENT ACCEPTED A CASE FOR THE ABOLITION OF INTEREST WITHHOLDING TAX, THEN IT WOULD HAVE TO FOLLOW, I THINK, THAT INTEREST EARNINGS CAUGHT UP I PROFITS TAX ASSESSMENTS WOULD ALSO NEED TO BE EXEMPTED FROM PROFITS TAX.+ MR. HADDON-CAVE SAID.

THE LOSS IN REVENUE VOULD ALSO BE ACCRAVATED BY COMPANIES KOVING INCREASINGLY TO LOAN FINANCE, AND ALL SORTS OF SCHEMES WOULD DE HATCHED UP TO CONVERT VARIOUS FORMS OF INCOME INTO, OR DISGUISE THEM AS, INTEREST EARNINGS.

+IT IS QUITE INCONCEIVABLE THAT REVENUE LOSSES OF THIS ORDER COULD BE HADE GOOD BY INCREASED FROFITS TAX ON THE BORROW ING 03 LENDING TRANSACTIONS THAT WOULD BE CELERATED BY THE ACOLITION! OF INTEREST TAX. SJ, TIE LOSS OF REVENUE COULD HAVE TO BE MADE. GOOD BY HIGHER RATES OF OTHER TAXES OR SOME OTHER LEVY. HE SAID.

TURNING TO THE MONETARY ASPECTS, THE FINANCIAL SECRETARY SAID THAT HE WAS WELL AWARE OF THE ARCULENT THAT THE UITHHOLDING OF INTEREST TAX FROM PAYIENTS OF INTEREST BY DANKS CAND FINANCE HOUSES) HAD THE EFFECT OF ENCOURAGING COMPANIES AND INDIVIDUALS RESIDENT IN HONG KONG TO TRANSFER AT LEAST PART OF THEIR EXCESS LIQUIDITY ABROAD, WITH ERODING EFFECTS ON THE HONG KONG DOLLAR DEPOSIT BASE OF THE LICENSED BANS AND THUS ON THEIR ABILITY TO FINANCE HONG KONG'S HOUSTRY AND COMMERCE.

MR.HADDON CAVE