ENG-2008 — Page 100

60 The Economy

Investment Fund, plus expenditure by the government trading funds and the Housing Authority. Government grants and subventions to institutions in the private or quasi-private sectors are included, but not spending by organisations in which the Government has only an equity stake, such as the Airport Authority and the MTR Corporation Limited. Similarly, advances and equity investments from the Capital Investment Fund as well as repayment of government bonds and notes are excluded as they do not reflect the actual consumption of resources by the Government.

Financial Results

The Government's consolidated account recorded a surplus of $123.6 billion in 2007-08. Fiscal reserves at the end of March 2008 stood at $492.9 billion. This reserve is available to meet any calls on the Government's contingent liabilities and to cope with any short-term fluctuations in expenditure relative to revenue.

Total government revenue in 2007-08 amounted to $358.4 billion and spending, $234.8 billion. For details of revenue by source and of expenditure by component for 2007-08 and 2008-09 (Revised Estimate) see Appendix 6, Table 6.

Public expenditure in 2007-08 totalled $252.5 billion. There was an increase of 4.4 per cent in nominal terms or 1.3 per cent in real terms over the previous year. Some $40.3 billion, or 16 per cent of the public expenditure in 2007-08, was of a non-recurrent nature. Table 7 gives an analysis of expenditure by policy area group and Table 8, the growth rate of public expenditure as compared with the rate of economic growth.

Revenue Sources

Hong Kong's tax system is simple and relatively inexpensive to administer. Tax rates are low, and the Government gives a high priority to curbing tax evasion and minimising opportunities for tax avoidance. The major sources of revenue are profits tax (26 per cent), land premiums (17 per cent) and salaries tax (11 per cent). Other significant sources include revenue from stamp duties (14 per cent), properties and investments (8 per cent), utilities, fees and charges for services provided by the Government (4 per cent), bets and sweeps tax (4 per cent), general rates (3 per cent), and duties on dutiable commodities (2 per cent). These major sources of revenue are presented at Appendix 6, Chart 1.

The Inland Revenue Department collects about 56 per cent of total revenue, including profits tax, salaries tax, property tax, stamp duties, bets and sweeps tax, and hotel accommodation tax. Profits, salaries and property taxes (including tax under personal assessment), which together accounted for about 38 per cent of the total revenue in 2007-08, 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 profits arising in or derived from Hong Kong, from a trade, profession or business carried on in Hong Kong. In 2007-08, profits of unincorporated businesses were taxed at 16 per cent and profits of corporations at