ENG-1960 — Page 86

PUBLIC FINANCES

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Ordinance was enacted as a temporary war-time measure 'for the purpose of raising funds by way of a tax on incomes to assist His Majesty's Government in the prosecution of the War'. After the liberation of the Colony no attempt was made to collect this tax, although the Ordinance had not been repealed, as by that time the purpose for which the tax had been imposed had dis- appeared. But in 1947 the finances of the Colony were such that it was essential to introduce a new source of revenue. It was decided to reimpose a direct tax on incomes as a permanent measure and the old War Revenue Ordinance was repealed and replaced by the Inland Revenue Ordinance, 1947.

In the new Ordinance, as in the old, tax is charged only on income or profits arising in or derived from the Colony. No tax is charged on income or profits which arise or derive from outside the Colony even though they are remitted here. The Ordinance endeavours to charge tax at source rather than on the eventual recipient and so to avoid the necessity of ascertaining the total taxable income of each individual. This is to simplify administra- tion. Incomes and profits are grouped in four categories, each of which suffers a separate tax. These taxes are Property Tax, Salaries Tax, Profits Tax and Interest Tax. A resident of the Colony, but not a non-resident, may elect to be 'personally assessed'. If he does so his income and profits in the four different categories are aggregated into a single sum and a distinct tax charged on this.

The standard rate of tax is 12% and has not been changed since 1950. Profits arising from business, interest received from loans and the interest content of purchased annuities, are charged to tax at the full standard rate. Where the profits are under $7,000, and the business is carried on by an individual or a partnership, no tax is charged. Property Tax is charged at one-half the standard rate on the net rateable value of any land or buildings in the Colony, other than those situated in the New Territories which are exempt from Property Tax. Salaries Tax is charged at a stepped rate which begins with one-fifth of the standard rate (21%) on the first $5,000 and rises by one-fifth of the standard rate (21%) for each subsequent $5,000 until, at $45,000, the maximum rate of twice the standard rate (25%) is reached. These rates are not charged on the total income but on the balance