17.
6
Fifthly, at least one of my correspondents
has argued that we have shifted over from a source. basis to a residence basis and that, therefore, the Bill, as drafted, breaches the territorial source
criterion. But this is not true. Where a business is carried on in Hong Kong and the profits of that business arise in Hong Kong, such profits clearly have a territorial connection with Hong Kong. However, because case law has established the artificial provision of credit test, some profits from interest have been escaping the charge to tax. The Bill does no more than correct this situation, but it does so by reference to business activities carried on here, and not by any arbitrary test related
to residence.
18. Sixthly, it has been said that the Bill discriminates against smaller banks which do not have a wide spread of regional offices. I find this particular complaint quite surprising. The fact of the matter is that our smaller banks are, in general, already paying tax on their full profits. That is to
say, their effective rate of tax is much closer to 17% than that of their larger competitors.
It is the larger banks and financial institutions which.
have been able to avoid the full
impact of the present profits tax charge. However, let me say, in passing, that I do not see it as any part of the Government's function to help small institutions at the expense of large institutions or, indeed, vice
versa.
19. Seventhly, it has been suggested that the Bill singles out banks and financial institutions through the taxation of one particular type of income and one particular type of business. The profits of other businesses derived from operations which, in substance, take place in Hong Kong are already taxable under the existing law. But, because of the reliance on the provision of credit test as a means of identifying the
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