XN000022-1984-02-29 — Page 26

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WEDNESDAY, FEBRUARY 29, 1934

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NEW MEASURES PROPOSED TO PROTECT TAX YIELDS

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THE FINANCIAL SECRETARY, THE HON SIR JOHN BREMRIDGE, TODAY (WEDNESDAY) PROPOSED TWO NEW MEASURES TO PROTECT THE YIELD FROM PROFITS TAX FOLLOWING THE REMOVAL OF INTEREST TAX ON DEPOSITS, AND TO BRING WITHIN THE PROFITS TAX NET ALL INTEREST FROM DEPOSITS, INCLUDING SO-CALLED OFFSHORE DEPOSITS WHERE SUCH INTEREST IN REALITY ARISES FROM THE BUSINESS OPERATIONS IN

ONG KONG.

SIR JOHN HOPED THAT THE PROVISIONS WHICH WILL BE PUBLISHED SHORTLY IN BILL FORM, WOULD NOT MEET WITH GENERAL OPPOSITION FROM RESPONSIBLE PEOPLE IN THE BUSINESS SECTOR. INDEED, HE BELIEVED THAT THE PROPOSALS WERE ESSENTIAL FOR THE PROTECTION OF REVENUE AND SHOULD DETER TAX AVOIDERS.

+AT THE SAME TIME THEY ARE CAREFULLY DESIGNED TO LEAVE AMPLE SCOPE FOR THE GENUINE BUSINESS BORROWER TO OBTAIN FULL DEDUCTIONS FOR INTEREST EXPENSES INCURRED. THERE ARE MORE DRACONIAN MEASURES THAT COULD HAVE BEEN INTRODUCED, WHICH I TRUST WILL NOT BE NECESSARY, HE ADDED.

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SIR JOHN SAID THAT IN OCTOBER LAST, AS PART OF THE PACKAGE OF PROPOSALS TO STABILISE THE CURRENCY, THE DECISION WAS TAKEN TO RESTRICT SEVERELY THE AMBIT OF THE INTEREST TAX. ACCORDINGLY, FROM OCTOBER 17, 1983, INTEREST PAID OR PAYABLE ON DEPOSITS MADE IN HONG KONG CURRENCY WITH A FINANCIAL INSTITUTION CARRYING ON BUSINESS IN HONG KONG BECAME EXEMPT FROM INTEREST TAX.

FROM FEBRUARY 1982 A SIMILAR EXEMPTION HAD BEEN ACCORDED TO FOREIGN CURRENCY DEPOSITS WITH LOCAL FINANCIAL INSTITUTIONS AS PART OF THE 1982 BUDGET PROPOSALS.

HE SAID HE HAD REFERRED FREQUENTLY TO THE POSSIBLE EFFECT> WHICH THE REMOVAL OF THE INTEREST TAX MIGHT HAVE ON THE PROFITS TAX AND THUS THE FURTHER SERIOUS CONSEQUENCES FOR GOVERNMENT REVENUE.

SIR JOHN SAID HE DID NOT NEED TO SPELL OUT IN PRECISE TERMS THE DETAILS OF THE TAX AVOIDANCE DEVICES WHICH WERE NOW AVAILABLE TO BUSINESS ENTERPRISES BY VIRTUE OF THE REPEAL OF INTEREST TAX ON DEPOSITS,

+ IN ESSENCE THEY INVOLVE A REDUCTION OF THE LIABILITY TO PROF ITS TAX THROUGH THE USE OF HIGH DEBT TO EQUITY CAPITALISATION ARRANGEMENTS, WHILST AT THE SAME TIME THE BUSINESS PROPRIETORS CAN ENJOY TAX-FREE INTEREST INCOME OUTSIDE THE BUSINESS THROUGH THE PLACING OF DEPOSITS WITH FINANCIAL INSTITUTIONS, + HE SAID.

SIR JOHN SAID THERE WAS ALREADY EVIDENCE THAT BANKERS AND TAX AVOIDANCE SPECIALISTS HAD SET ABOUT ADVISING CUSTOMERS AND CLIENTS OF THE OPPORTUNITIES FOR TAX DIMINUTION UNDER THE PRE..T LAW.