XN000022-1978-08-16 — Page 6

WEDNESDAY, AUGUST 16, 1978

+ IF THE COMMISSIONER DECIDED TO IMPOSE A PROFITS TAX CHARGE BY SUDDENLY IGNORING THE LEGAL BASIS ON WHICH THE PROVISION OF CREDIT TEST IS FOUNDED THIS WOULD CREATE AN ATMOSPHERE OF UNACCEPTABLE UNCERTAINTY WHILE A TEST CASE WAS BEFORE THE COURT,✦ HE SAID.

(3) ALLEGED DISCRIMINATORY NATURE OF THE BILL

MR. HADDON-CAVE ALSO REJECTED THE VIEW THAT THE BILL, BECAUSE IT SINGLES OUT FINANCIAL INSTITUTIONS, IS DISCRIMINATORY= AND, THEREFORE, THE DEEMING DEVICE IS INAPPROPRIATE.

THE FINANCIAL SECRETARY REMINDED THAT THE POSITION OF A BANK OR A DEPOSIT-TAKING COMPANY IS NOT ANALOGOUS TO THAT OF AN INDIVIDUAL OR A CORPORATION ENGAGED IN OTHER OPERATIONS.

HE SAID BANKS AND DEPOSIT-TAKING COMPANIES ARE ENGAGED IN THE BUSINESS OF BORROWING AND LEND ING AND THEY MAKE THEIR PROFITS BY BORROWING MORE CHEAPLY THAN THEY LEND.

+TO THE EXTENT THAT THE OPERATIONS INVOLVED IN THEIR BORROWING AND LENDING TRANSACTIONS TAKE PLACE IN HONG KONG, IT IS ENTIRELY LOGICAL THAT THE PROF ITS FROM SUCH TRANSACTIONS SHOULD BE LIABLE TO HONG KONG TAX.+

(4)

INCIDENCE OF TAX

REFERRING TO THE SUGGESTION THAT THE STATE OF OUR PUBLIC FINANCES IS SUCH THAT THERE IS NO NEED TO PLUG THE LOOPHOLE IN THE PRESENT SYSTEM, THE FINANCIAL SECRETARY SAID: +THIS POINT OVERLOOKS THE PRIMARY OBJECTIVE OF THE BILL WHICH IS TO IMPROVE THE YIELD FROM THE CHARGE TO HELP ME TO MAINTAIN THE RATE OF TAX ON CORPORATE PROF ITS GENERALLY AT 17 PER CENT FOR AS LONG AS POSSIBLE TO THE UNDOUBTED BENEFIT OF THE GROWTH RATE OF THE ECONOMY.+

HE SAID THE BILL IS ALSO A REFORM MEASURE AND AGREED WITH SENIOR UNOFFICIAL MEMBER, THE HON. SIR SZE-YUEN CHUNG THAT WE SHOULD SEEK +TO ENSURE THAT THE DIFFERENT SECTORS OF OUR BUSINESS COMMUNITY CONTRIBUTE TOWARDS THE PUBLIC PURSE ON A MORE EQUITABLE BASIS+.

(5) ECONOMIC IMPLICATIONS OF THE BILL

MR. HADDON-CAVE EXPRESSED DOUBT ON THE SUGGESTIONS OF A MASS MIGRATION OF BANKING BUSINESS FROM HONG KONG AND THAT THE ULTIMATE DAMAGE+ FROM THE PROPOSED EXTENSION OF THE PROFITS TAX CHARGE COULD BE +ENORMOUS+.

HE ASKED, WILL THE ENACTMENT OF THE BILL DRIVE BUSINESS AWAY FROM HONG KONG TO ANY SIGNIFICANT EXTENT?+

MR. HADDON-CAVE