ENG-1998 — Page 97

THE ECONOMY

submit bids through the Internet. The new electronic tendering system is scheduled for completion in early 2000.

In 1997-98, the department placed orders of a total value of $4.37 billion, purchasing from 38 different countries. The major sources of supply were the USA, China, the UK, Japan and Germany. Major items of purchase included pharmaceutical supplies, computer systems, food provisions, medical equipment and equipment for the new airport.

Supplies of goods to meet general needs are held in the purpose-built Government Logistics Centre in Chai Wan which was put into operation in late 1996. The operations are assisted by a modern computerised system which provides, among others, on line communication with customers. In 1997-98, the total value of stock items acquired was valued at $402 million and items issued to customers were worth $388 million.

The department also seconds supplies staff to other departments to ensure a professional approach to acquisition and maintenance of stores and equipment.

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 evasion and minimising opportunities for tax avoidance. The major sources of revenue are profits tax, salaries tax and revenue from land transactions. Other significant sources include stamp duty on property and stock transactions, returns on properties and investments, betting duty, fees and charges for services provided by the government and duties on certain specified commodities. (For major sources of revenue, see Appendix 15).

The Inland Revenue Department collects about 50 per cent of total revenue, including profits and salaries taxes, stamp duty, betting duty, estate duty and hotel accommodation tax. Profits and salaries taxes, which alone accounted for about 30 per cent of total revenue in 1997-98, are levied under the Inland Revenue Ordinance. Persons liable to these taxes 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. At present, profits of unincorporated businesses are taxed at 15 per cent and profits of corporations at 16 per cent.

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. Interest income, other than that received by financial institutions, and dividends received from corporations are exempt from profits tax. In 1997-98, the government received about $55 billion in profits tax, or about 20 per cent of total revenue.

Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and method of payment (including provisional payments) are similar to the system for profits tax. Tax payable is calculated on a sliding scale which progresses from 2 per cent, 7 per cent and 12 per cent on the first, second and third

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