TNAG-2692-FCO40-3895-Limited-Compensation-Scheme-and-reprinting-of-Colonial-Regul-1993 — Page 8

t

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(a)

a lump

sum

(b)

3

calculated

by multiplying the

officer's annual

appropriate to

salary by a factor actuarially

his age and length of service

subject to an

overall

maximum ceiling of 4.76

times the annual value of the Master Pay Scale

Point 48 (now Point 45 of the revised MPS);

on

retirement, payment of the officer's earned

in the case of officers

pension benefits with,

below the age of 55, an enhanced factor for the

commutation of pensions.

5.

contained

Annex A (Annex A).

The compensation

and

commutation

factors are

in the tables I to III in the Appendix to the LCS

When the scheme was introduced in 1987 it was

estimated that about 100 officers, mainly in the Police

Force and the Administrative Service, would be affected and

the cost of the proposal would be around $100m at 1987-88

So far a total of 16 officers have been retired

under the LCS at a cost of a total of $17.1 million.

prices.

Tax Issue

6.

Under existing legislation, compensation paid to

directed to retire is exempt from tax.

officers who are

This is because the lump sum payment can be regarded as

compensation

for loss of office or employment and would not

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Annex B

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4

be chargeable to Hong Kong

salaries tax.

However,

compensation for officers superseded for promotion and who

remain in the service is prima facie chargeable to salaries

tax as it cannot be regarded as compensation for loss of

also applies to

office or

employment.

This

principle

officers who are superseded for promotion and who make

application to retire under the scheme as the compensation

could still not be regarded as compensation for loss of

office or employment.

7.

all

In order to achieve the original intention that

compensation paid to officers under the LCS should be

tax free, there is a need to gross up the compensation for

officers who are superseded for promotion to facilitate

localisation to cover their tax liability. It is proposed

factors at Tables IA and IB of the

that the

compensation

Appendix to Annex A be grossed up by the standard tax rate

of 15%. Revised tables are at Annex B.

FINANCIAL IMPLICATIONS

8.

promotion

To date, there have been no supersessions for

under the LCS. It is estimated about 30 staff

compensated on supersession for promotion

may have to be

between now and June 1997. The additional expenditure on

compensation for

supersession

would be recovered as tax

revenue.

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