ENG-2008 — Page 101

The Economy 61

17.5 per cent. In 2008-09, the tax rates were revised to 15 per cent and 16.5 per cent respectively.

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 2007-08, the Government received about $91.4 billion in profits tax (about 26 per cent of total revenue).

Salaries tax is charged on emoluments arising in, or derived from, Hong Kong. The basis of assessment and provisional tax mechanism are similar to profits tax. Tax payable in 2007-08 was calculated on a sliding scale that progressed from 2 per cent, 7 per cent and 12 per cent on the first, second and third segments of net income (that is, income less deduction and allowances) of $35,000 each (revised to $40,000 in 2008-09), respectively, and then to 17 per cent on the remaining net income. No one, however, needed to pay more than the standard rate of 16 per cent (revised to 15 per cent in 2008-09) 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 11 per cent of total revenue) in 2007-08. Owing to the generous personal allowances under the Hong Kong tax law, only 39 per cent of the workforce had to pay salaries tax for the year of assessment 2006-07.

Owners of land or buildings in Hong Kong were charged property tax in 2007- 08 at the standard rate of 16 per cent (revised to 15 per cent in 2008-09) 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. Properties owned by a corporation carrying on a business in Hong Kong are exempt from property tax, but profits derived from ownership are chargeable to profits tax. Property tax contributed some $1.2 billion (about 0.3 per cent of total revenue) in 2007-08.

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 $51.5 billion, about 14 per cent of total revenue, in 2007-08.

A duty is imposed on the gross profits on horse racing and football betting administered by the Hong Kong Jockey Club, and proceeds of Mark Six lotteries. These are the only legal forms of betting in Hong Kong. Effective from September 1, 2006, the duty on horse racing is charged on a sliding scale, starting from the rate of 72.5 per cent on the first $11 billion of the gross profits. The rate progressed to 73 per cent, 73.5 per cent, 74 per cent and 74.5 per cent for each segment of