ENG-2006 — Page 91

The Economy 63

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 2005-06, the Government received about $69.8 billion in profits tax (about 28 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 in 2005-06 was calculated on a sliding scale that progressed from 2 per cent, 8 per cent and 14 per cent on the first, second and third segments of net income (that is, income less deduction and allowances) of $30,000 each, respectively, and then to 20 per cent on the remaining net income. No one, however, needed to pay more than the standard rate of 16 per cent of his or her 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 $37.5 billion (about 15 per cent of total revenue) in 2005-06. Owing to the generous personal allowances under the Hong Kong tax law, only 37 per cent of the workforce had to pay salaries tax for the year of assessment 2004-05.

Owners of land or buildings in Hong Kong were charged property tax in 2005- 06 at the standard rate of 16 per cent of 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. Property tax contributed some $1.3 billion (about 0.5 per cent of total revenue) in 2005-06.

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 was some 17.9 billion, about 7 per cent of total revenue, in 2005-06.

A duty is imposed on bets on horse racing administered by the Hong Kong Jockey Club, proceeds of Mark Six lotteries, and gross profits of the Hong Kong Jockey Club's football betting operation. These are the only legal forms of betting in Hong Kong. The rate of duty on betting proceeds from horse racing was 12 per cent on standard bets and 20 per cent on exotic bets in 2005-06. The duty on football betting, which was introduced on August 1, 2003, is charged at a rate of 50 per cent of gross profits. The yield from betting duty in 2005-06 totalled some $11.9 billion, or about 5 per cent of total revenue.

Prior to its abolition on February 11, 2006, estate duty was imposed on estates. valued at over $7.5 million, at levels ranging from 5 per cent to a maximum of 15 per cent. Estates of persons who died during the period between July 15, 2005 and February 10, 2006 will be charged a nominal duty of $100, if the value exceeds $7.5 million.