ENG-1993 — Page 85

THE ECONOMY

The Inland Revenue Department is responsible for the collection of over 50 per cent of total revenue, including earnings and profits tax, stamp duty, betting duty, estate duty and hotel accommodation tax. Revenue from these sources are collectively described as internal

revenue.

Earnings and profits tax, which alone accounted for about 39 per cent of total revenue in 1992-93, is levied under the Inland Revenue Ordinance. Persons liable to this tax may be assessed on three separate and distinct sources of income: business profits, salaries and income from property.

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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 businesses 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.

Profits 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 1992-93, the government received some $32 billion in profits tax, amounting to about 24 per cent of the total

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 segments of net income (that is, income after deduction of allowances) of $20,000, to nine per cent and 17 per cent on the second and third segments of $30,000 each, respectively, 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 $20 billion, or 15 per cent of total revenue, in 1992–93.

Owners of land or buildings in Hong Kong are charged property tax at the standard rate of 15 per cent for the actual rent received, less an allowance of 20 per cent for repairs and maintenance. There is a system of provisional payment of tax similar to that for profits tax and salaries tax. Property owned by a corporation carrying on a business in Hong Kong is exempt from property tax (but profits derived from ownership are chargeable to profits tax). Receipts from property tax totalled $1.3 billion in 1992–93.

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 revenue from stamp duties accounted for about 10 per cent of total revenue, or $13 billion, in 1992-93.

Betting duty is imposed on bets at the Royal Hong Kong Jockey Club and on the proceeds of Mark Six lotteries the only legal forms of betting in Hong Kong. The duty now accounts for about six per cent of total revenue.

The rate of duty is 11.5 per cent or 17.5 per cent of the amount of the bet, depending on the type of bet placed, and 30 per cent on the proceeds of lotteries. The yield in 1992–93 totalled some $8 billion.

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