ENG-2003 — Page 104

THE ECONOMY

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Government announced that it would not propose any further upward adjustment to fees and charges until the end of October 2003. All these concessions produced total savings of $0.8 billion for households and businesses.

Also, in 2002-03, the Government collected $17.6 billion, amounting to about 9.9 per cent of the total revenue, from investments and interest income on the fiscal

reserves.

Lastly, some $11.5 billion, or about 6.5 per cent of the total revenue in 2002-03, was generated from land transactions. All revenue from land transactions is credited to the Capital Works Reserve Fund to help finance the Public Works Programme.

Need to Broaden Tax Base

The Government has identified two major problems besetting the public revenue. First, the tax base is narrow. Only about 37 per cent of the workforce pay tax on their salaries. Among them, only 100 000 contribute about 60 per cent of the salaries tax. Similarly, as few as 500 corporations, only about 1 per cent of the total number of profit-making corporation, contribute 60 per cent of the profits tax.

The second problem is the stability of the revenue. Many of the existing taxes are easily affected by the ups and downs of the economy. Owing to the economic downturn and deflation brought about by the financial crisis and the slump in the property market, the recurrent revenue has dropped from $201.6 billion in 1997-98 to an estimated $149.2 billion in 2003-04, representing a decrease of $52.4 billion or 26 per cent. Hence it is necessary to explore stable and broad-based revenue sources in the long term to improve the Government's revenue structure, thereby laying down a solid foundation for the public finances. In this connection, a broad-based Goods and Services Tax (GST) is considered to be a reasonable and equitable way of smoothing out bumps in the revenue stream. However, the Government is not contemplating the introduction of a GST in a deflationary environment. This would only be levied against the backdrop of a healthy and growing economy. An internal committee has been set up to study the feasibility of a GST.

Government Logistics Department

The Government Logistics Department was established on July 1, 2003 upon merging of the then Government Supplies Department, Government Land Transport Agency and Printing Department.

Purchases of goods and related services required by government departments are undertaken centrally by the Government Logistics Department. These goods and related services are normally obtained by competitive tendering, without giving preference to any particular source of supply, to ensure that users' needs are met at the best possible price, having regard to life-time cost and reliability of supply. Helping users to derive the best value in their purchases, the department formulates a specific strategy for each type of purchase based on market conditions, focusing on meeting requirements for high-value and critical items by cost-effective and reliable

means.

'Hong Kong, China' is a signatory to the World Trade Organisation Agreement on Government Procurement (WTO GPA). Government procurement is undertaken in accordance with the principles of openness, transparency, fairness and non- discrimination. Public tender procedures are widely used for general and common items. Restricted or single tender procedures are used where open competitive