ENG-1982 — Page 73

44

FINANCIAL SYSTEM AND ECONOMY

Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and the system of payment is similar to that under profits tax. Tax payable is calculated on a sliding scale which varies from five per cent to 25 per cent on $10,000 segments of income (that is, income after deduction of allowances). However, the overall effective rate is restricted to a maximum of 15 per cent of income before the deduction of personal allowances. The current levels of the various allowances are: for the taxpayer himself $20,500; for his wife $20,500; for the first child $8,000; for the second child $5,500; for the third child $3,000; for the fourth to sixth child $2,000 each; for the seventh to ninth child $1,000 each; and $8,000 for each of his, or his wife's, dependent parents. In addition, there are supplementary personal allowances of $7,500 for single persons and $15,000 for married persons. Apart from expenses necessarily incurred in the production of income, and charitable donations up to 10 per cent of taxable income, there are no other allowances. For salaries tax purposes the income of a wife is deemed to be that of her husband.

Property tax is charged on the owner of land and/or buildings in Hong Kong at the standard rate of 15 per cent on an amount calculated by reference to estimated rental value, less an allowance of 20 per cent for repairs and maintenance. There are exemptions in respect of property occupied by an owner for residential purposes, vacant premises, premises owned by clubs and trade associations, for certain ancestral property, and for property in certain undeveloped parts of the New Territories. If the property is owned by a person carrying on a trade or business and is occupied by him for business purposes, the amount of property tax paid may be deducted from the profits tax payable. Property owned by corporations carrying on business in Hong Kong is exempt from property tax; however, the profits derived from the ownership is chargeable to profits tax.

Interest tax is normally deducted at source through a withholding system at 15 per cent on interest arising in, or derived from, Hong Kong. However, interest paid or payable after February 24, 1982, on a foreign currency deposit is exempt from interest tax, and the tax rate in respect of interest payable after the same date on a Hong Kong currency deposit is reduced to 10 per cent, provided such deposits are made with financial institutions carrying on a business in Hong Kong. Interest received by a corporation carrying on a business in Hong Kong is deemed to be part of the trading profits of the corporation and is chargeable to profits tax. There is exemption from interest tax on interest paid by the government, and by licensed banks and public utilities provided it does not exceed a specified rate which varies from time to time.

Personal assessment, which is available to an individual who is a resident of Hong Kong, is a form of relief from the full impact of the standard rate. A taxpayer in receipt of earnings and profits, normally taxed at 15 per cent on each separate source, may voluntarily elect to be assessed on total Hong Kong income. In addition to the allowances and sliding scale of rates applicable to salaries tax, any business loss is deductible before arriving at the amount on which tax is payable. The advantages of personal assessment disappear when tax at the sliding scale on the amount taxable exceeds tax at the standard rate on total income (before the allowances).

Taxes on earnings and profits are estimated to yield $11,216 million in the 1982-3 financial year compared with actual collections of $10,567 million for 1981–2.

The Stamp Duty Ordinance imposes fixed and ad valorem duties on different classes of documents relating to assignments of immovable property, leases and share transfers. The estimated yield for 1982-3 is $1,755 million compared with actual collections of $2,168 million in 1981–2. The 1981-2 collections reflected the buoyant property and share market conditions which prevailed during much of that year.