ENG-2009 — Page 110

62 The Economy

total revenue in 2008-09, 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 2008-09, profits of unincorporated businesses were taxed at 15 per cent and profits of corporations at 16.5 per cent.

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 2008-09, the Government received about $104.2 billion in profits tax (about 33 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 2008-09 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 (i.e. income less deduction and allowances) of $40,000 each, respectively, and then to 17 per cent on the remaining net income. No one, however, needed to pay more than the standard rate of 15 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 $39 billion (about 12 per cent of total revenue) in 2008-09. Owing to the generous personal allowances under the Hong Kong tax law, only 1.4 million people or 40 per cent of the workforce had to pay salaries tax for the year of assessment 2007-08.

Owners of land or buildings in Hong Kong were charged property tax in 2008-09 at the standard rate of 15 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. 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 $0.8 billion (about 0.3 per cent of total revenue) in 2008-09.

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 $32.2 billion, about 10 per cent of total revenue, in 2008-09.