XN000022-1979-01-24 — Page 10

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WEDNESDAY, JANUARY 24, 1979

BILL TO RAISE INTEREST TAX EXEMPTION RATE

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A BILL WHICH SEEKS TO RAISE FROM FIVE PER CENT TO 7-1/2 PER CENT THE CEILING ON THE POWERS OF THE FINANCIAL SECRETARY TO SPECIFY THE INTEREST TAX EXEMPTION RATE WAS INTRODUCED INTO THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY).

SPEAKING AT THE SECOND READING OF THE INLAND REVENUE (AMENDMENT) (NO. 2) BILL IN THE COUNCIL, THE FINANCIAL SECRETARY, THE HON. PHILIP HADDON-CAVE SAID A SERIES OF REFORMS WAS MADE SINCE 1975 TO AVOID THE TIMING PROBLEMS INVOLVED IN ENSURING THAT THE EXEMPTION RATE REMAINS THE SAME AS THE SAVINGS ACCOUNT RATE.

HE SAID THROUGHOUT THESE REFORMS, ONE FACTOR HAD REMAINED UNCHANGED AND THAT IS THE CEILING OF FIVE PER CENT ON THE AUTHORITY SET OUT IN THE INLAND REVENUE ORDINANCE FOR THE EXEMPTION RATE TO BE CHANGED.

MR. HADDON-CAVE SAID: IT WOULD HAVE BEEN OPEN TO US TO REFUSE TO RAISE THE RATE OF EXEMPTION ABOVE FIVE PER CENT TO AVOID THE INCREASING COST TO THE PUBLIC REVENUE OF THIS LONG-STANDING POLICY.+

BUT THAT REFUSAL WOULD HAVE BEEN COSTLY IN TERMS OF ADMINISTRATIVE EFFORT IN THE INLAND REVENUE DEPARTMENT FOR THEY WOULD HAVE TO COPE WITH A VERY LARGE NUMBER OF CLAIMS FOR REFUNDS. HE ALSO NOTED THAT FROM JANUARY 2 THIS YEAR, THE SAVINGS ACCOUNTS HAVE BORNE INTEREST AT THE RATE OF 5-1/4 PER CENT.

HE SAID THE TAX EXEMPTION RATE APPLIES TO INTEREST ON SAVINGS ACCOUNTS AND THE LATEST ESTIMATE OF SUCH ACCOUNTS NUMBERED OVER FOUR MILLION. THE RATE ALSO APPLIES TO INTEREST PAID BY THE PUBLIC UTILITY COMPANIES AND AT LEAST ONE OF THOSE COMPANIES PAYS THE SAME RATE AS THE BANK SAVINGS ACCOUNT RATE.

+IT ACCORDINGLY SEEMS APPROPRIATE TO AVOID A SUBSTANTIAL INCREASE IN ADMINISTRATIVE COSTS AND GREAT INCONVENIENCE LEADING PROBABLY TO AN UNWELCOME REDUCTION IN THE SAVINGS HABIT, BY CONTINUING OUR PRESENT POLICY OF EXEMPTING THIS INTEREST FROM TAX- WE, THEREFORE NEED, TO AMEND SECTION 28 OF THE ORDINANCE TO ENABLE CHANGES IN THE RATE OF EXEMPTION TO BE SYNCHRONISED WITH THE CHANGES IN THE RATE OF INTEREST PAID ON SAVINGS ACCOUNT.+

MR. HADDON-CAVE ALSO NOTED THAT THE BILL WAS BROUGHT INTO FORCE ON JANUARY 2 BY MEANS OF A REVENUE PROTECTION ORDER TO COINCIDE WITH A NOTICE SIGNED BY HIM SPECIFYING 5-1/4 PER CENT AS THE RATE OF EXEMPTION FOR THE TIME BEING.

DEBATE ON THE BILL WAS LATER ADJOURNED.

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