TNAG-0453-FCO40-518-Budget-of-Hong-Kong-1974-1975-1975 — Page 141

20.

My honourable Friend also raised the question of so-called "inflation accounting". I trust he will forgive me if I turn down his pressing invitation to enter into a debate on this highly controversial subject on which not even

accountants can reach agreement. I shall, however, say this: in my opinion the increased depreciation allowances which I announced in the budget speech, coupled with the low standard

rate of profits tax in Hong Kong (and how often must I refer

to this) are such that the more esoteric forms of relief are un-

necessary. May I also remind my honourable Friend that when

developing his comparison between his fictitious real estate

company and his fictitious manufacturing company, he failed

to take into account the fact that his fictitious real

estate company would only be granted an annual re-building

allowance of three-quarters of one per cent of the cost of its principal assets; whereas his fictitious manufacturing company, in addition to an initial allowance of 25%, would be granted annual depreciation allowances at rates ranging up to 20%. I would also like to take issue with him when he says that

the higher depreciation allowances announced will "only" defer tax payments. Surely, as a businessman, he must agree that, in these days of inflation, high interest rates and cash flow problems "deferral" is the name of the game.

21.

(d) Restoring or redefining the ambit of the profits

tax charge

I should now like to make a specific reference to the

suggestions made both inside and outside this Chamber that,

by redefining the profits tax charge and restoring the base to

the width which our post-war predecessors properly intended it

to be, I shall be chasing away business from Hong Kong. I do

not consider that these fears have any real foundation. Tax

rates have been going up all over the world and tax nets have

been widened. The universal tendency, Hong Kong being the notable exception, has been to extend charges, previously limited to a territorial source, to a charge on worldwide income. This being the case, where can these businesses

go?

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