ENG-1973 — Page 69

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FINANCIAL STRUCTURE

Unoccupied property was also, up to the year of assessment 1972-3, exempted; however, with effect from 1973-4 tax at half the standard rate has been imposed.

Interest Tax is charged at the standard rate on interest arising in or derived from Hong Kong. It is withheld at source unless it forms part of the profits of a corporation carrying on a trade or business in Hong Kong, in which case it will be subjected to Profits Tax.

Profits Tax is charged at the standard rate on profits arising in or derived from Hong Kong from a trade or business conducted in Hong Kong. Expenses incurred in the production of those profits are deductible.

Salaries Tax is charged on salaries arising in or derived from Hong Kong on a sliding scale which, for the year of assessment 1973-4, varies from five to 30 per cent on net chargeable income-income after deduction of personal allowances. However, the overall effective rate of tax is limited to 15 per cent of the income before deducting personal allowances.

The financial year ending March 31, 1973 saw the introduction of several far reaching measures and proposals in relation to Salaries Tax. Thus 1972-3_was the last year in which tax for the current year was based on income in the previous year. From 1973-4 taxes will be paid on a system using income from the previous year only as a basis for provisional tax-the final tax due will be computed from the assess- able income earned in the current year. A similar system for Profits Tax was forecast by the Financial Secretary when introducing his 1973-4 budget proposals.

A measure of tax reform was also introduced as part of the budget proposals. This increased the basic allowances: those for the taxpayer (from $7,000 to $10,000); his wife (from $7,000 to $10,000); his first child (from $2,000 to $3,000); his second child (from $2,000 to $2,500); his third child (from $1,000 to $1,500). The allowances for the fourth to sixth child remain at $1,000 and those from the seventh to ninth child at $500 each. All the other allowances-insurance contributions, dependent parents, working wives and lower income relief-were withdrawn. The proposals affect Salaries Tax assessments for 1973-4 onwards.

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A further feature of the Inland Revenue Ordinance is the right of a taxpayer to elect for what is known as personal assessment. This aggregates his income from the four sources mentioned earlier and gives him the benefit of the same personal allowances and sliding scale of tax as would be allowed for Salaries Tax purposes. A set-off of tax paid on the individual sources of income is allowed.

There is no tax on dividends received as they are regarded as having been paid out of taxed profits.

It is estimated that the revenue from Earnings and Profits Tax during the financial year 1973-4 will be $1,492.9 million.

Estate Duty is imposed on that part of a deceased person's estate which is situated in Hong Kong. Estates which do not exceed $200,000 are exempt. The rate of duty varies from five per cent on estates valued between $200,000 and $300,000 to 15 per