ENG-1976 — Page 65

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FINANCIAL STRUCTURE

There are few exemptions from rates. Educational, charitable and welfare premises are rated, but the government generally provides financial assistance where such premises are run by non-profit-making organisations. No relief is available for vacant domestic premises, but a refund of half the rates paid may be granted in the case of non-domestic premises.

The estimated revenue from rates for 1976–7 is $882 million, of which about $267 million will go to the Urban Council.

Internal Revenue

Earnings and profits are taxed under the Inland Revenue Ordinance according to the form of the income arising in or derived from Hong Kong. The current standard rate of tax of 15 per cent has been in force since April 1, 1966. The various forms of income which are subject to separate taxes are property, business profits, interest and salaries.

Property Tax is charged at the standard rate on the owner, but there are exemp- tions-including property occupied by the owner for his residential purposes, vacant property, and property in certain undeveloped parts of the New Territories. Following proclamations by the Governor, a number of previously exempted areas of the New Territories have become chargeable to the tax. Properties owned by corporations carrying on business in Hong Kong are exempted, because profits from their owner- ship are chargeable to Profits Tax.

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 is subject to Profits Tax. Interest payable by the government and licensed banks of up to two per cent per annum, and by public utilities 34 per cent, is exempt (these rates effective from August 6, 1976 and March 1, 1975 respectively).

Profits Tax is charged on profits arising in or derived from Hong Kong from any trade or business carried on in Hong Kong. Unincorporated businesses are charged at the standard rate of tax of 15 per cent. Corporations were charged at 16.5 per cent for the year of assessment commencing April 1, 1975 and they are chargeable at 17 per cent for the year of assessment commencing April 1, 1976 and onwards. Expenses incurred in the production of profits chargeable to tax are deductible, as are charitable donations up to a maximum of 10 per cent of net assessable profits.

Salaries Tax is charged on emoluments arising in or derived from Hong Kong. Tax is calculated on a sliding scale which varies from five per cent 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. These allowances are: for the taxpayer, $10,000; his wife, $10,000; the first child, $3,000; the second child, $2,500; and the third child, $1,500. The allowance for the fourth to sixth child is $1,000 each, and for the seventh to ninth child $500 each. Apart from the deduction of expenses necessarily incurred in produc- tion of the income, and charitable donations up to 10 per cent of assessable income, there are no other allowances.