ENG-1959 — Page 77

PUBLIC FINANCE AND TAXATION

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profit. These are Property Tax, Interest Tax, Salaries Tax and Profits Tax, the first two being collected by deduction at source.

The standard rate of tax has remained unchanged at 12% since 1950-1. Profits of businesses, interest payments and most annuities are charged in full at the standard rate. However, small unincorporated businesses whose profits do not exceed $7,000 are exempted from Profits Tax. Property Tax is charged at half the standard rate on the net rateable value of all land and buildings in the Colony, originally with the exception of property situated in the New Territories. The development of the Colony during the past twelve years has led to expansion of the urban areas resulting in certain built-up districts in the New Territories being rated with a consequent increase in the scope of Property Tax. Profits for Profits Tax purposes are computed in an orthodox manner as is the chargeable income for Salaries Tax purposes. Allowances granted in the latter case include Personal Allowance at $7,000, allowance for wife $7,000, and allowances for children ranging from $2,000 for each of the first two to $200 for the ninth child. The balance of the income which remains after deducting the allowances is charged at a stepped rate which commences at 24% on the first $5,000 and rises by 21% for each subsequent $5,000 until a maximum rate of 25%, chargeable on the excess over $45,000, is reached. Under no circumstances, however, can the tax exceed 124% of the total income liable to Salaries Tax.

Although the Ordinance imposes four separate taxes, every resident, either temporary or permanent, may elect to be personally assessed by stating in one sum the total of his Hong Kong income which would otherwise be chargeable with any of the other taxes. He is then granted allowances and charged at graduated rates of tax on a scale similar to Salaries Tax, except that there is no limit to the amount which may be charged at 25%. Any sums paid on account of the four principal taxes charged are set off against the tax chargeable on the total accumulated income. A temporary resident is defined as one living in the Colony for 180 days during any one fiscal year or 300 days during two consecutive fiscal years one of which is that in respect of which the election is made.

It is estimated that taxes collected under the Inland Revenue Ordinance will produce revenue amounting to $120,000,000 during