XN000022-1994-03-09 — Page 12

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WEDNESDAY, MARCH 9, 1994

CAPITAL GAINS TAX NOT RIGHT WAY TO CURB SPECULATION

ADMINISTRATION

THE

HAS STRONG RESERVATIONS то INTRODUCE A CAPITAL GAINS TAX, ALTHOUGH THE SUBJECT IS NOT CLOSED AND IT IS STILL STUDYING THE POSSIBLE RAMIFICATIONS OF SUCH A TAX IN HONG KONG,

THIS WAS STATED BY THE SECRETARY FOR THE TREASURY, MR DONALD TSANG, WHEN REPLYING TO A QUESTION BY DR THE HON YEUNG SUM IN THE LEGISLATIVE COUNCIL TODAY (WEDNESDAY).

"A CAPITAL GAINS TAX WOULD SEND A STRONG NEGATIVE SIGNAL TO BOTH LOCAL AND OVERSEAS INVESTORS.

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HE SAID THE ADMINISTRATION'S INITIAL ASSESSMENT WAS THAT SUCH A TAX WOULD HAVE A SIGNIFICANT, NEGATIVE IMPACT ON PROPERTY DEVELOPMENT AND INVESTMENT IN HONG KONG.

TO PROVIDE AN EFFECTIVE DETERRENT AGAINST PROPERTY SPECULATION, THE TAX WOULD HAVE TO BE SET AT A RELATIVELY HIGH LEVEL, HE SAID.

"THIS WOULD DAMPEN DEMAND NOT ONLY AMONG SPECULATORS BUT ALSO THOSE WHO WANT TO MAKE A LONG-TERM INVESTMENT IN THE PROPERTY MARKET,"

THIS WOULD ULTIMATELY REDUCE THE AVAILABILITY OF PREMISES THOSE END-USERS WHO OPT TO LEASE RATHER THAN TO OWN PROPERTY.

FOR

THERE IS OF COURSE THE DANGER THAT PROPERTY DEVELOPERS WOULD RESPOND BY CUTTING BACK ON THEIR PRODUCTION, HE ADDED.

T+

"THE LONGER-TERM DEVELOPMENT OF THE PROPERTY SECTOR COULD BE JEOPARDISED, MR TSANG SAID.

THUS

BETWEEN 1989 ΤΟ 1993,

THE SECRETARY SAID PRIVATE SECTOR BUILDING EXPENDITURE TOOK UP 50 TO 60 PER CENT OF THE OVERALL EXPENDITURE ON BUILDING AND CONSTRUCTION IN THE ECONOMY.

"IF YOU INCLUDE THE SERVICE MARGIN OF REAL ESTATE EXPENDITURE ACCOUNTED FOR 30 TO 40 PER CENT OF INVESTMENT EXPENDITURE IN OUR GROSS DOMESTIC PRODUCTS."

THIS

DEVELOPERS, THE OVERALL

A CAPITAL GAINS TAX ON PROPERTY TRANSACTIONS WOULD THUS IMPACT ON A LARGE SEGMENT OF INVESTMENT IN THE ECONOMY, HE SAID.

MR TSANG SAID THE ADMINISTRATION WAS WORKING ON A QUANTITATIVE ANALYSIS OF THE IMPACT OF SUCH TAX ON THE PROPERTY SECTOR AND ON THE ECONOMY AS A WHOLE.

THIS STUDY HAS NOT YET BEEN COMPLETED, HE SAID.

HE ALSO LISTED THE OTHER PRACTICAL ISSUES THAT HAD то BE ADDRESSED IN INTRODUCING A CAPITAL GAINS TAX:

* THE APPROPRIATE TREATMENT OF GAINS ATTRIBUTABLE TO INFLATION;

* WHETHER LOSSES SHOULD BE DEDUCTIBLE AND, IF SO, WHETHER SHOULD ONLY BE OFFSET AGAINST CAPITAL GAINS;

WHETHER GAINS

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