XN000022-1983-09-16 — Page 3

FRIDAY, SEPTEMBER 16, 19bs

OVER THE SAME PERIOD, RE-EXPORTS GREW BY 12 PER CENT IN MONEY TERMS OR SIX PER CENT IN REAL TERMS, WHILE IMPORTS EXPANDED BY 11 PER CENT IN MONEY TERMS, OR FOUR PER CENT IN REAL TERMS.

+THE VISIBLE TRADE GAP THUS NARROWED FROM 14 PER CENT IN THE FIRST HALF OF 1982 TO 12 PER CENT IN THE FIRST HALF OF THIS YEAR AN IMPROVEMENT, LET IT BE NOTED, OF 14 PER CENT,+ SIR JOHN SAID.

+THERE HAVE BEEN SUGGESTIONS THAT THE GOVERNMENT SHOULD ABOLISH THE 10 PER CENT INTEREST WITHHOLDING TAX ON HONG KONG DOLLAR DEPOSITS IN ORDER TO SUPPORT THE EXCHANGE RATE,+ SIR JOHN NOTED.

BUT HE SAID THAT HE DID NOT BELIEVE THAT THE SMALL TAX DIFFERENTIAL+ HAD BEEN A SIGNIFICANT CONTRIBUTORY FACTOR TO THE DEPRECIATION OF THE HONG KONG DOLLAR, THOUGH IT MUST BE UNHELPFUL, PARTICULARLY PSYCHOLOGICALLY, +

+1 MUST ALSO BE CONCERNED ABOUT THE POTENTIAL LOSS OF GOVERNMENT REVENUE. THE ESTIMATED REVENUE FROM INTEREST TAX IN 1983-84 IS $620 MILLION AND, ALTHOUGH, INDICATIONS ARE THAT THE ACTUAL YIELD WILL BE LESS, IT WILL STILL REPRESENT A LARGE SUM - SAY, FOR EXAMPLE ONLY, ABOUT THE COST OF THE NEW POLYTECHNIC, SIR JOHN POINTED OUT.

OF EQUAL IMPORTANCE, HE ADDED, WAS THE POSSIBLE EFFECT WHICH THE ABOLITION OF THE TAX MIGHT HAVE ON REVENUE FROM PROFIT TAX, WHICH COULD HAVE FURTHER SERIOUS CONSEQUENCES FOR GOVERNMENT REVENUE.

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+WERE I TO COME TO THE VIEW THAT INTEREST TAX SHOULD BE ABOLISHED SHOULD HAVE TO INTRODUCE MEASURES TO PROTECT THE PROFITS TAX YIELD - AND THESE MEASURES MIGHT BE DRACONIAN AND THUS UNPALATABLE.

+ONE POSSIBILITY THAT HAS BEEN SUGGESTED IS THE IMPOSITION OF A STATUTORY MINIMUM RATIO OF EQUITY TO DEBT FINANCING FOR ALL BUSINESSES, WITH THE CONSEQUENTIAL DISALLOWANCE FOR PROFITS TAX CALCULATION PURPOSES OF INTEREST PAYMENTS RELATED TO DEBT FINANCING NOT SECURED ON THE ASSETS OF THE BUSINESS AND FALLING BELOW THE PRESCRIBED RATIO.

+SUCH A SCHEME MIGHT BE BROADLY FEASIBLE, BUT A GREAT DEAL OF FURTHER THOUGHT IS REQUIRED. MY MIND REMAINS OPEN AND I INTEND TO RE-ADDRESS THE ISSUE IN THE CONTEXT OF NEXT YEAR'S BUDGET,+ SIR JOHN STATED.

IN THE FIRST HALF OF THIS YEAR, FOREIGN CURRENCY DEPOSITS, MAINLY IN U.S. DOLLARS, WITH BANKS AND DEPOSIT-TAKING

COMPANIES IN HONG KONG ROSE BY 25 PER CENT, WHILE HONG KONG DOLLAR DEPOSITS FELL BY THREE PER CENT.

+JULY PRESENTED A CHANGED PICTURE, BUT IT IS TOO EARLY TO RELY ON ONE MONTH'S FIGURES SHOWING RENEWED GROWTH IN HONG KONG DOLLAR DEPOSITS,+ SIR JOHN SAID.

/HE MENTIONED