ENG-1994 — Page 98

THE ECONOMY

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The draft estimates of expenditure on the General Revenue Account are presented by the Financial Secretary to the Legislative Council when he delivers his annual budget speech. In the Appropriation Bill introduced to the Legislative Council at the same time, the administration seeks appropriation of the total estimated expenditure on the General Revenue Account.

The estimates of expenditure contain details of the estimated recurrent and capital expenditure of all government departments, including estimates of payments to be made to subvented organisations and estimates of transfers to be made to the statutory funds. They also provide for the repayment of public debt.

For the past 10 years, the government's consolidated account has achieved a surplus every year. The accumulated surpluses, which form the government's fiscal reserves, are available to meet any calls on the government's contingent liabilities and enable the government to cope with any short-term fluctuations in expenditure relative to revenue.

The Urban Council and Regional Council, which operate through the Urban Services Department and Regional Services Department, respectively, are financially autonomous. They draw up their own budgets and expenditure priorities. The expenditures of the two councils are financed mainly from a fixed percentage of the rates from property in the Urban Council area (Hong Kong, Kowloon and New Kowloon) and in the Regional Council area (New Territories). Additional income is derived from fees and charges for the services the councils provide.

The Hong Kong Housing Authority, operating through the Housing Department, is also financially autonomous. Its income is derived mainly from flat sales and 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 activities such as clearances and squatter control, is financed from the General Revenue Account.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, and the government accords a high priority to curbing tax avoidance and evasion. The major sources of revenue are salaries tax and profits tax. Others include rates on property, stamp duty on property and stock market transactions, betting duty and duties on certain specified commodities. (For the major sources of revenue, see Appendix 12).

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 is collectively described as internal

revenue.

Earnings and profits tax, which alone accounted for about 38 per cent of total revenue in 1993–94, 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.

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 16.5 per cent (reduced