XN000022-1984-04-25 — Page 5

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WEDNESDAY, APRIL 25, 1984

+ IF, HOWEVER, THOSE WHO DENY THE NEED FOR INCREASED OR NEW TAX MEASURES ALTOGETHER, OR OPPOSE THE FORM PROPOSED, WISH TO BE TAKEN SERIOUSLY, IT WOULD BE MORE PERSUASIVE IF THEY SIMULTANEOUSLY SUBMITTED EQUALLY PRODUCTIVE ALTERNATIVES, HE ADDED.

HE NOTED THERE HAD BEEN ATTACKS ON THE PROFITS TAX INCREASE, ON MEASURES TO SAFEGUARD THE REVENUE YIELD AFTER THE WIDELY ADVOCATED REMOVAL OF INTEREST TAX, AND ON NEW ARRANGEMENTS TO BRING SO-CALLED OFFSHORE INTEREST INTO THE TAX NET.

+VESTED INTERESTS MUST HAVE THEIR FAIR SAY, BUT THE BUDGET CONCERNS THE ECONOMIC WELL-BEING OF THE WHOLE COMMUNITY.

+ IF MY PROPOSALS ARE ACCEPTED, TAX REVENUE WILL STILL REPRESENT ONLY ABOUT 11.3 PER CENT OF GDP. THIS IS THE LOWEST FIGURE THAT I KNOW OF IN INDUSTRIAL ECONOMIES,+ HE SAID, ADDING THAT HONG KONG WOULD ALSO RETAIN LOWER CORPORATE TAXATION RATES THAN ANY OF ITS ASIAN COMPETITORS.+

ON THE GROWING COMPLICATION OF TAX LAW AND THE WASTE OF RESOURCES THAT COULD RESULT, SIR JOHN POINTED OUT THAT THIS WAS NO DESIGN OF THE GOVERNMENT BUT AN INEVITABLE AND PROPER REACTION.

+ IT SHOWS OUR DETERMINATION TO PROTECT THE REVENUE IN THE INTERESTS OF THE OVERWHELMING MAJORITY WHEN CONFRONTED WITH PRIOR SKILFUL TAX AVOIDANCE MEASURES, HE ADDED.

SIR JOHN TOLD THE COUNCIL THAT HE WAS ALSO STUDYING WITH HIS ADVISORS THE ANTI-AVOIDANCE PROVISIONS CONTAINED IN THE ORDINANCE WITH A VIEW TO MAKING THEM MORE EFFECTIVE AND RELEVANT TO HONG KONG'S NEEDS.

BUT HE ADDED THAT NO PROPOSALS THAT HE MIGHT MAKE TO THE EXECUTIVE COUNCIL WOULD INCLUDE CHANGE TO THE BASIC TERRITORIAL SOURCE CRITERION.

+ THE GOVERNMENT REMAINS WEDDED TO THE PRINCIPLE THAT TAXATION SHOULD ONLY BE APPLIED TO INCOME ARISING FROM HONG KONG,+ HE SAID.

+ I SEE NO PERSUASIVE REASON WHY, IN THE INTERESTS OF THE GREAT BULK OF OUR PEOPLE, WE SHOULD NOT TAKE FAIR AND PRINCIPLED STEPS TO CATCH THOSE COMPANIES WHO, WHILE PROFITING FROM OUR ENVIRONMENT YET SEEK TO AVOID OUR LOW TAXATION AND THUS THEIR CONTRIBUTION TO HONG KONG'S. INFRASTRUCTURE.

+THE FACTS MUST BE FACED. ON ONE SIDE IS A SAFEGUARD TO PROTECT AN EXISTING PROFITS TAX YIELD OF ABOUT $400 MILLION PER YEAR ($500 MILLION HAVING ALREADY BEEN LOST WITH THE REMOVAL OF INTEREST TAX), PLUS A MEASURE TO ACQUIRE ANOTHER $350 MILLION PER YEAR FROM OFFSHORE INTEREST - ON THE OTHER, THE CONTINUATION OF OUR REASONABLE SOCIAL PROGRAMMES. FEW SERIOUSLY PROPOUND OTHER POSSIBLE COURSES OF ACTION, SIR JOHN STATED.

HE POINTED TO THE LACK OF BALANCE OF THOSE WHO CRITICISED THE DETAIL OF PROPOSED NEW LEGISLATION LONG BEFORE THE ACTUAL AMENDMENT HAD BEEN GAZETTED AS AN ADJUNCT TO THE NECESSARY REVENUE PROTECTION ORDER.

HE EXPLAINED