XN000022-1987-03-18 — Page 23

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WEDNESDAY, MARCH 18, 1987

IN ADDITION, HE SAID THE GOVERNMENT'S SYSTEM OF CASH ACCOUNTING WHICH WAS WRITING OFF ASSETS AS SOON AS THEY WERE PAID FOR INCREASED THE DEFICIT AND MEANT THAT MANY VALUABLE ASSETS WERE NOT INCLUDED IN THE OVERALL FINANCIAL POSITION.

WHILE ACCEPTING THAT THE CASH SYSTEM WAS APPROPRIATE FOR PUBLIC SECTOR ACCOUNTING IN HONG KONG, MR CLYDESDALE SAID IT WAS PROBABLY SAFE TO SAY THAT WE HAD NOT BEEN IN DEFICIT IN ANY OF THE LAST 27 YEARS.

+ HONG KONG HAS HAD ITS UPS AND DOWNS, AND YET EXPERIENCE SHOWS THAT REVENUES HAVE ALWAYS BEEN SUFFICIENT. THE PRESENT MIX OF DIRECT TAX AND INDIRECT TAX HOWEVER NARROWLY BASED, HAS YIELDED SUFFICIENT REVENUE BOTH IN BAD YEARS AS WELL AS THE GOOD YEARS, HE SAID.

THEREFORE, HE SAID, THERE WAS NO COMPELLING NEED TO INTRODUCE A BROADLY-BASED INDIRECT TAX SYSTEM.

MR CLYDESDALE SUPPORTED THE FINANCIAL SECRETARY'S VIEW THAT A VALUE ADDED TAX (VAT) WOULD BE WHOLLY INAPPROPRIATE, AS VAT WAS A MULTI-STAGE TAX THAT WOULD INVOLVE TOO MUCH ADMINISTRATION WITH ATTENDANT HIGH COSTS.

HE SAID BROADLY-BASED CONSUMPTION TAX WOULD AFFECT POOR PEOPLE MORE THAN RICH PEOPLE AND THAT IT COULD WORK INEQUITABLY IN SOCIAL TERMS.

+IF A CONSUMPTION TAX IS SO CAREFULLY TAILORED AS TO HAVE A NEUTRAL AFFECT ON LOW INCOME GROUPS, IT TOO WILL BE A NARROWLY BASED TAX.

+THIS MAKES ONE WONDER WHETHER SOCIALLY ACCEPTABLE REFORM IN THIS DIRECTION COULD ACHIEVE ANYTHING MEANINGFUL, HE SAID.

MR CLYDESDALE SAID THERE WAS A STRONG CASE FOR MAINTAINING THE PRESENT PROGRESSIVE SYSTEM AS IT WAS A BETTER REDISTRIBUTOR OF WEALTH.

IN ADDITION, HE SAID, AS BUSINESS PROFITS AND SALARIES NORMALLY MIRROR MOVEMENTS IN GDP, REVENUES FROM THE PRESENT TAX REGIME SHOULD CONTINUE TO PRODUCE SUFFICIENT REVENUES TO MEET PLANNED GOVERNMENT EXPENDITURE.

+AS WE ALL KNOW PUBLIC EXPENDITURES ARE TO BE LINKED WITH MOVEMENTS IN GDP, BE THEY UPWARDS OR DOWNWARDS,+ HE ADDED.

TURNING TO OTHER TAX PROPOSALS, MR CLYDESDALE SAID THAT THE 60-DAY RULE FOR OUTBOUND EXECUTIVES HAD GREAT POTENTIAL AS A PRACTICAL SOLUTION TO THE MANY SALARIES TAX DISPUTES THAT WOULD OTHERWISE ARISE, AND TO ONE ASPECT OF THE PROBLEM OF DOUBLE TAX WITH CHINA.

/HOWEVER,