ENG-1992 — Page 70

THE ECONOMY

The Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from rents. If the Authority's cash flow is inadequate to meet the construction costs of new estates, it may request an injection of capital by the government. The authority is provided with land on concessionary terms for the construction of public rental housing. Part of the authority's recurrent expenditure, for such activities as clearances and squatter control, is financed from the General Revenue Account. The authority is also responsible for carrying out a programme of squatter area improvements which are funded from the Capital Works Reserve Fund.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, but the government accords a high priority to curbing tax avoidance and evasion. The principal direct taxes are salaries tax and profits tax. Important indirect taxes include rates on property, stamp duty on property and stock market transactions, betting duty and duties on certain specified commodities (see Appendix 11).

The Inland Revenue Department is responsible for the collection of over 60 per cent of general revenue including earnings and profits tax, stamp duty, betting duty, estate duty, hotel accommodation tax, and entertainments tax. Revenue from these sources are collectively described as 'internal revenue'.

Earnings and profits tax, which alone accounted for about 44 per cent of general revenue in 1991-2, is levied under the Inland Revenue Ordinance. Persons liable to this tax may be assessed on three separate and distinct sources of income, namely business profits, salaries and income from property.

Profits tax is charged only on net profits arising in Hong Kong, or derived from a trade, profession or business carried on in Hong Kong. Profits of unincorporated business are currently taxed at 15 per cent and profits of corporations are taxed at 17.5 per cent. Tax is payable on the actual profits for the year of assessment.

Tax is paid initially on the basis of profits made in the year preceding the year of assessment and is subsequently adjusted according to profits actually made in the assessment year. Generally, all expenses incurred in the production of assessable profits are deductible. There is no withholding tax on dividends paid by corporations and dividends received from corporations are exempt from profits tax. In 1991-2, the government received some $25 billion in profits tax, amounting to about 25 per cent of the general

revenue.

Salaries tax is charged on emoluments arising in or derived from Hong Kong. The basis of assessment and method of payment are similar to the system for profits tax. Tax payable is calculated on a sliding scale which progresses from two per cent to 17 per cent on the first three segments of net income (that is, income after deduction of allowances) of $20,000 each and then to 25 per cent on remaining net income. No one, however, pays more than 15 per cent of their total income. The earnings of husbands and wives are reported and assessed separately. However, where either spouse has allowances that exceed his or her income, or when separate assessments would result in an increase in salaries tax payable by the couple, they may elect to be assessed jointly. Salaries tax contributed some $17 billion, or 17 per cent of total general revenue, in 1991-2.

Owners of land or buildings in Hong Kong are charged property tax at the standard rate of 15 per cent on the actual rent received, less an allowance of 20 per cent for repairs and

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