XN000022-1984-05-25 — Page 8

7

-

FRIDAY, MAY 25, 1984

A GOVERNMENT SPOKESMAN POINTED OUT THAT THE STANDARD RATE HAS REMAINED UNCHANGED FOR 18 YEARS SINCE 1966-67 AND THE CORPORATE SURCHARGE HAS BEEN AT LOW LEVELS FOR EIGHT YEARS. THE PROPOSED INCREASES IN THE RATES OF TAX ARE ESTIMATED TO PRODUCE AN ADDITIONAL $903 MILLION FROM EARNINGS AND PROFITS TAX IN 1984/85.

IT IS ESTIMATED THAT THE NEW STANDARD RATE WILL AFFECT ONLY SOME 30 000 SALARIES TAXPAYERS EARNING RELATIVELY HIGH INCOMES. FOR EXAMPLE, A SINGLE PERSON WILL NOT ENTER INTO THE NEW 17% THRESHOLD AND A MARRIED COUPLE WITH TWO CHILDREN WILL NOT BECOME LIABLE AT THE NEW RATE OF 17% UNTIL THE IR MONTHLY SALARIES EXCEED $12 499 AND $23 306 RESPECTIVELY, HE SAID.

EXPLAINING THE BACKGROUND TO THE NEW ANTI-AVOIDANCE MEASURES, THE SPOKESMAN SAID THAT THE REMOVAL OF INTEREST TAX ON DEPOSITS WITH FINANCIAL INSTITUTIONS HAS PROVIDED CONSIDERABLE SCOPE FOR AVOIDANCE OF THE PROFITS TAX CHARGE. THE PROPOSED MEASURES ARE FOR THE PROTECTION OF PUBLIC REVENUE WITH THE OBJECT OF DISCOURAGING BUSINESS PROPRIETORS AND COMPANIES FROM STRUCTURING THEIR BUSINESSES WITH MINIMUM EQUITY AND HIGH LOAN INDEBTEDNESS SECURED AGAINST DEPOSITS WITH FINANCIAL INSTITUTIONS.

THE MEASURES, HOWEVER, DO NOT APPLY TO FINANCIAL INSTITUTIONS AND WILL THEREFORE HAVE NO PRACTICAL EFFECT ON BORROWINGS BY SUCH ORGANISATIONS. THERE IS ALSO RELIEF FOR GENUINE ARMS-LENGTH BUSINESS ARRANGEMENTS WHICH INVOLVE THE PURCHASE OF GOODS OR CAPITAL EQUIPMENT ON CREDIT TERMS, WHEREUNDER THE SUPPLIER ARRANGES CREDIT SUBJECT TO THE PAYMENT OF INTEREST CHARGES. SUCH INTEREST CHARGES WILL CONTINUE TO QUALIFY FOR DEDUCTION AND WILL NOT BE AFFECTED BY THE PROPOSED NEW MEASURES TO BE INTRODUCED.

THE SPOKESMAN SAID THAT ALL INTEREST RECEIVED BY BUSINESSES CARRIED ON IN HONG KONG WILL BE CHARGEABLE TO PROFITS TAX FROM APRIL 1, 1984. THE PLACE WHERE THE MONEY LOANED IS MADE AVAILABLE OR THE CURRENCY IN WHICH THE TRANSACTION IS DENOMINATED WILL NO LONGER BE RELEVANT IN DETERMINING THE SOURCE OF BUSINESS INTEREST

INCOME.

THE NEW STATUTORY TEST, AS NOW PROPOSED, IS THE CARRYING ON OF BUSINESS IN HONG KONG - A FACTUAL TEST OF HONG KONG SOURCED

INCOME, HE SAID.

THE BILL. IF ENACTED, WILL HAVE EFFECT IN RESPECT OF PROVISIONAL PROF ITS TAX, SALARIES TAX AND PROPERTY TAX ASSESSMENTS AND FINAL PROFITS, SALARIES, PROPERTY, INTEREST AND PERSONAL ASSESSMENTS FOR 1984/85 AND SUBSEQUENT YEARS.

THE BILL IS SCHEDULED TO BE INTRODUCED INTO THE LEGISLATIVE COUNCIL ON MAY 30 FOR FIRST READING AND IS EXPECTED TO GO THROUGH THE REMAINING LEGISLATIVE PROCEDURES ON JUNE 13.

-

18