ENG-1979 — Page 69

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FINANCE AND ECONOMY

to the extent to which they have been incurred in the production of profits chargeable to tax, are deductible. Charitable donations up to a maximum of 10 per cent of net assessable profits are also deductible.

Salaries tax is charged on emoluments arising in or derived from Hong Kong. Tax is calculated on a sliding scale which rises from five per cent to 25 per cent on net chargeable income, that is, 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 allow- ances. These allowances are: for the taxpayer $10,000; his wife $10,000; his children (ranging from $4,000 for the first to $500 for the ninth); and for each of his or his wife's dependant parents $4,000. Single and married taxpayers are given an additional personal allowance of $2,500 and $5,000 respectively, but this allowance is abated until the point is reached where the entire additional allowance disappears. Apart from the deduction of expenses necessarily incurred in the production of income, and charitable donations up to 10 per cent of assessable income, there are no other allowances.

Property tax is charged at the standard rate on the owner of land and/or buildings in Hong Kong by reference to estimated rental values. However, there are exemptions, in- cluding property occupied by the owner for his residential purposes, vacant premises and property in certain undeveloped parts of the New Territories. Properties owned by cor- porations carrying on business in Hong Kong are exempted from property tax, because profits from their ownership are chargeable to profits tax.

Interest tax is charged at the standard rate on interest arising in or derived from Hong Kong. This is basically a withholding tax deducted at source unless the interest 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, licensed banks and certain-utility companies not exceeding 91 per cent per annum is exempt. The exemption rate varies with changes in interest rates paid on bank deposits: the level of 91 per cent has been in force since August 21, 1979.

A taxpayer has the right to choose to be assessed on his total Hong Kong income under what is known as 'personal assessment'. Under 'personal assessment', a taxpayer's income from the four sources mentioned earlier is aggregated, and he is given the benefit of the same personal allowances and sliding scale of tax which is applicable for salaries tax purposes. A set-off of tax paid on the individual sources of income is allowed.

Estate duty is imposed on that part of a deceased person's estate which is situated in Hong Kong. The rates of duty charged range from a minimum of seven per cent on estates valued between $400,000 and $500,000 to a maximum of 18 per cent on those in excess of $3 million. Estates valued at less than $400,000 are exempt from duty. The yield for the year ended March 31, 1980, is estimated to be $135 million.

Indirect Taxes

There is no general tariff on goods entering Hong Kong but duties are charged on four groups of commodities - alcoholic liquors, tobacco, certain hydrocarbon oils and methyl alcohol - irrespective of whether they are imported or manufactured locally. All firms en- gaged in the import, export, manufacture or sale of dutiable commodities must be licensed. On liquors, the basic duty rates range in equivalence from $0.60 a litre on Hong Kong- brewed beer to $27.06 a litre on brandy. On tobacco, rates range in equivalence from $8.16 a kilogram on Chinese-prepared tobacco to $44.42 a kilogram on cigarettes. Rates on hydrocarbon oils are equivalent to $0.35 a litre on diesel oil for road vehicles and $0.48 a litre on motor and aircraft spirits. The rate for methyl alcohol is equivalent to $2.18 a litre.