ENG-1983 — Page 77

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THE ECONOMY

The taxes and duties making up the internal revenue are collected by the Inland Revenue Department. These consist of betting duty, business registration fees, entertainment tax, estate duty, hotel accommodation tax, stamp duty and earnings and profits tax.

Betting duty is imposed on bets on authorised totalisators and the proceeds of Mark Six Lotteries. The rate of duty is either 8.5 per cent or 13.5 per cent depending on the type of bet placed, and is 27 per cent on the proceeds of lotteries.

Business registration is compulsory for every company incorporated in Hong Kong, every overseas company with a place of business in Hong Kong and every business operating in Hong Kong, except those run by charitable institutions. The annual registra- tion fee is $350 but exemption from payment is granted where the business is small.

Entertainment tax is imposed on the price of admission to cinemas and race meetings at rates which vary with the prices charged for admission. This averages about nine per cent in the case of cinemas and 30 per cent in the case of race meetings.

Estate duty is imposed on that part of a deceased's estate situated in Hong Kong. The rates of duty charged range from a minimum of 10 per cent on estates valued between $2 million and $2.5 million to a maximum of 18 per cent on estates valued in excess of $4 million. Estates valued at less than $2 million are exempt from duty.

Hotel accommodation tax of five per cent is imposed on hotel and guest-house guests. 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.

Earnings and profits tax is levied under the Inland Revenue Ordinance. Hong Kong has a schedular system of taxation whereby persons liable are assessed and required to account for tax on four separate and distinct sources of income, namely business profits, salaries, property and interest. Personal assessment is a form of aggregation superimposed upon the schedular system. The current standard rate of tax of 15 per cent has been in force since April 1, 1966.

Profits tax is charged only on profits arising in, or derived from, Hong Kong from a trade, profession or business carried on in Hong Kong. Profits of unincorporated businesses are taxed at 15 per cent whereas profits of corporations are taxed at 16.5 per cent. Assessable profits are determined on the actual profits for the year of assessment. The tax is paid provisionally on the basis of profits of the year preceding assessment. As in many other countries, profits assessable to profits tax in Hong Kong are the net profits. Generally, all expenses incurred in the production of assessable profits are deductible, as are charitable donations to the extent of 10 per cent of net assessable profits. There is no withholding tax on dividends paid by corporations, and dividends received from corporations are exempt. Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and the method of payment are similar to the system for 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 or other allowances.

Property tax is charged on the owner of land or buildings in Hong Kong at the standard rate of 15 per cent on the actual rent received, less an allowance of 20 per cent for repairs and maintenance. From the year of assessment commencing on April 1, 1983, a system of provisional payment of tax similar to that under profits tax and salaries tax has come into operation. Property owned by a corporation carrying on a business in Hong Kong is exempt from property tax but the profits derived from the ownership are chargeable to profits tax.