XN000022-1974-11-27 — Page 3

WEDNESDAY, NOVEMBER 27, 1974

NEW PROFITS TAX BILL TABLED IN LEGCO

*****

+

THE PROPOSED CHANGE IN THE BASIS OF PROFITS TAX ASSESSMENT FROM A PRECEDING YEAR TO A CURRENT YEAR BASIS WILL ENSURE THAT THE TAX LIABILITY OF PROFIT TAXPAYERS WILL ALWAYS HAVE AN EXACT RELATIONSHIP WITH THEIR ACTUAL PROFITS EARNED, BOTH IN THE SHORT TERM AND OVER THE LIFE OF A BUSINESS.

THIS WAS STATED IN THE LEGISLATIVE COUNCIL TODAY BY THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE, WHEN HE MOVED THE SECOND READING OF THE INLAND REVENUE (AMENDMENT) (NO. 3) BILL. THE BILL BRINGS PROFITS TAX IN LINE WITH ALL OTHER TAXES ON EARNINGS AND PROFITS, AND IS SCHEDULED TO COME INTO OPERATION ON APRIL 1 NEXT YEAR.

THE PRESENT SYSTEM OF ASSESSING PROFITS TAX ON THE PREVIOUS YEAR'S PROFITS, HE SAID, WAS AN ARTIFICIAL METHOD AND AT SOME EARLIER STAGE THE PROFITS OF ONE YEAR WOULD HAVE HAD TO BE USED TWICE, SUCH AS FOR EXAMPLE IN THE CASE OF A BUSINESS WHICH TRADES SUCCESSFULLY FOR A FEW YEARS AND THEN CEASES TRADING.

+THE DOUBLE USE OF A YEAR'S PROFITS AT COMMENCEMENT AND THE DROPPING OUT OF A YEAR'S PROFITS ON CESSATION MEANS THAT THERE IS AN INEXACT RELATIONSHIP OVER THE LIFE OF THE BUSINESS BETWEEN TOTAL PROFITS EARNED AND TOTAL TAX PAID,+ HE EXPLAINED. +THIS FREQUENTLY MEANS THAT TOTAL ASSESSABLE PROFITS ARE LESS THAN TOTAL PROFITS EARNED AND A CESSATION CAN EASILY BE TIMED TO PRODUCE THIS EFFECT.+

FOR ALL BUSINESS, HE ADDED, THE NEW SYSTEM WOULD MEAN THAT, FROM THE YEAR OF ASSESSMENT STARTING ON APRIL 1, 1975, THEIR TAX LIABILITY WILL BE NO MORE AND NO LESS THAN THE STANDARD RATE OF TAX APPLIED TO THEIR ACTUAL PROFITS. *THE ERRATIC EFFECTS OF THE PRESENT COMMENCEMENT AND CESSATION PROVISIONS WILL NO LONGER BE THERE.+

MR. HADDON-CAVE POINTED OUT THAT AS THE PROPOSED NEW SYSTEM INCORPORATES THE LONGSTANDING PAY-AS-YOU-GO PRINCIPLE AND KEEPS TAX PAYMENTS ABREAST OF THE PROFITS LIABLE TO TAX, THE TAXPAYER WILL HAVE LESS OPPORTUNITY TO AVOID PAYMENT.

HE ALSO NOTED THAT THE NEW SYSTEM WOULD ENABLE BUSINESSES TO ACCURATELY CALCULATE THE TAX RESERVES TO BE SET ASIDE FROM PROFITS.

THE FINANCIAL SECRETARY GAVE A LONG AND DETAILED OUTLINE OF THE MAIN FEATURES AND EFFECTS OF THE BILL, AND STRESSED THAT THE PROVISIONAL PROFIT TAX PAYMENT PROPOSED WAS NOT AN ADVANCE PAYMENT FOR THE NEXT YEAR OF ASSESSMENT.

+IT IS PAYMENT ON ACCOUNT FOR THE CURRENT YEAR OF ASSESSMENT, THAT IS TO SAY, ON ASSESSABLE PROFITS OF THE CURRENT YEAR WHICH, IN MANY CASES, WILL HAVE BEEN EARNED OR LARGELY EARNED.+

/IN THE FIRST ...............*