XN000022-1989-04-27 — Page 19

THURSDAY, APRIL 27, 1989

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ABOLISHING INTEREST TAX MAY BE OVER-GENEROUS PETER WONG

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THE FINANCIAL SECRETARY WAS GENEROUS IN HIS ACT OF ABOLISHING INTEREST TAX BY REPEALING SECTION 27 OF THE INLAND REVENUE ORDINANCE BUT THERE ARE RESERVATIONS AS TO WHETHER HE HAD BEEN OVERGENEROUS, HON PETER WONG SAID THIS IN THE LEGISLATIVE COUNCIL TODAY (THURSDAY).

THE

SPEAKING DURING THE SECOND DAY OF THE RESUMED BUDGET DEBATE, MR WONG SAID THAT THE FINANCIAL SECRETARY'S BUDGET HAD BEEN UNSPECTACULAR AND ALMOST BORING BUT TO THE FINANCIAL COMMUNITY THEY REFLECTED CONFIDENCE BECAUSE OF THE STEADY AND HARD WORK THAT HAD BEEN PUT IN.

"AS A PACKAGE. THE BUDGET HAS GIVEN ME CONFIDENCE THAT HONG KONG IS MOVING DOWN THE RIGHT TRACK, MR WONG SAID.

H

REFERRING TO THE FIVE YEAR ROLLING FORECASTING TOOL

THE MEDIUM RANGE FORECAST AND THE PUBLIC SECTOR REFORM PROPOSALS, MR WONG SAID: "THE NOISES COMING OUT OF LOWER ALBERT ROAD, THOLIGH FAINT, ARE BECOMING INCREASINGLY INTELLIGIBLE",

ON HIS RESERVATIONS ON ABOLISHING INTEREST TAX. MR WONG ECHOED THE HONG KONG SOCIETY OF ACCOUNTANTS ' WARNING THAT INTEREST TAX WAS A FINE TUNER OF THE OVERALL TAX BALANCING ACT IN HONG KONG AND THAT THE REPEAL OF SECTION 27 OF THE INLAND REVENUE ORDINANCE COULD HERALD THE BEGINNING OF YET ANOTHER TAX AVOIDANCE SEASON FOR HONG KONG.

MR WONG NOTED THAT THERE WAS A FINE CORRELATION BETWEEN HOW AN INVESTOR CHOSE TO TAKE HIS EARNINGS OUT OF AN INVESTMENT AND HOW THAT INVESTMENT WOULD BE TAXED, WHETHER BY WAY OF DIVIDENDS, INTEREST OR SOME FEES AND CHARGES.

DIVIDENDS WERE PAID OUT AFTER TAX PROFITS; SO THEORETICALLY, A FULL TAX CHARGE HAD BEEN LEVIED BEFORE THE DIVIDEND WAS PAID AND THAT DIVIDEND WAS THEREAFTER TAX FREE IN THE HANDS OF THE RECIPIENT.

"HOWEVER, INTEREST IS NORMALLY A DEDUCTION TO THE PAYER AND INCOME TO THE RECIPIENT," MR WONG SAID.

ON THE

"WITHIN THESE PARAMETERS THERE IS ROOM TO MANOEUVRE SOURCE OF THAT INTEREST FOR BOTH THE PAYER AND RECIPIENT, AND INTEREST TAX IS ONE OF THE MAIN TOOLS TO RESTRAIN SUCH MANIPULATION, HE SAID.

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REFERRING ΤΟ THE FORMER FINANCIAL SECRETARY'S BUDGET SPEECH IN THE 1984 APPROPRIATION BILL SECOND READING THAT HE WAS HIGHLY CONCERNED ABOUT THE POTENTIAL TAX LEAKAGE IN THE FORM OF INTEREST AND INTRODUCED THE HIGHLY UNPOPULAR LOCATION OF BUSINESS TEST, MR WONG ASKED: "HAVE ALL THOSE CONCERNS BEEN PROVEN GROUNDLESS?"

HE

SAID THAT WITH THE REPEAL OF SECTION 27 ALL. THOSE INTEREST PROVISIONS HAD NOW BEEN DISMANTLED AND THERE REMAINED ONLY THE ANTI- AVOIDANCE PROVISIONS SECTIONS AIMED AT BACK-TO-BACK LOANS AND GENERAL ARTIFICIAL TRANSACTIONS.

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