ENG-2004 — Page 102

72 | The Economy

policy that fees should in general be set at levels sufficient to recover the full cost of providing the services. Certain essential services are, however, subsidised by the Government or provided free of charge. Government-operated public utilities generated about $2.9 billion, which accounted for about 1 per cent of total revenue; the most important of these, in revenue terms, is water charges. The Government froze most Government fees and charges in February 1998 to ease the burden on the community at a time of economic setback. Following the gradual recovery of the economy, the Financial Secretary announced in the 2004-05 Budget that the Government would resume the revision of fees for government services and would first deal with fees that do not directly affect people's livelihood or general business activities.

Also, in 2003-04, the Government collected $25.9 billion, amounting to about 12.5 per cent of the total revenue, from investments and interest income on the fiscal

reserves.

Lastly, some $5.4 billion, or about 2.6 per cent of the total revenue in 2003-04, 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 recognises that the tax base of Hong Kong is very narrow and there is a need to broaden it to enhance the health of our public finances.

For a working population of some 3.2 million, only 1.2 million have to pay salaries tax. Of these, the top 100 000 taxpayers have contributed some 57 per cent of the salaries tax. As for profits tax, the top 500 corporations, which represent only about 1 per cent of the total number of profit-making corporations, have contributed 60 per cent. Compared with overseas developed economies, Hong Kong is more. reliant on profits tax and real property-related taxes or non-tax revenue. Since revenue from these sources is sensitive to economic fluctuations, we need to broaden our tax base to ensure a steady source of income to meet our public expenditure needs.

A Goods and Services Tax (GST) is considered a viable option to broaden the tax base. An internal study committee, set up in July 2003 to study the feasibility of a GST, has submitted a report to the Financial Secretary on how a GST would be implemented in Hong Kong. Overseas experience has found that the effects of a GST on the economy are generally limited and short-term. Over the long term, a GST enhances the competitiveness of the economy and stabilises government finances. The Government aims to engage the whole community in rational and constructive discussion before a decision is taken on whether we should have a GST.

Government Logistics Department

Purchases of goods and services required by government departments are undertaken centrally by the Government Logistics Department. These goods and services are normally obtained by competitive tendering, without preference to any particular source of supply, to ensure that users' needs are met at the best possible