Government's financial position has improved following the strong economic recovery. Adhering to the principle of affordability and avoiding further narrowing of our tax base, we propose the following salaries tax relief measures:

w to revert the marginal tax rates and tax bands to their 2002-03 levels;

w to increase the child allowance by HK$10,000 to HK$50,000 and introduce an additional one-off child allowance of HK$50,000 for each child in the year of birth;

w to increase the maximum amount of deduction for self-education expenses by HK$20,000 to HK$60,000 to encourage employees to seek continual self-advancement through learning.

(The above tax concessions will reduce the tax burden of 1.1 million taxpayers and cost the Government about HK$4.9 billion a year.)

To reduce the stamp duty on transactions of properties valued between HK$1 million and HK$2 million to a fixed amount of HK$100 to assist more families to buy their homes. This will benefit about 30 000 home buyers and cost the government about HK$250 million a year.

To reduce by half the duty rates on wine, beer and other types of liquor containing not more than 30 percent of alcohol to help promote the development of our catering industry, tourism and wholesale and retail alcoholic beverage trade, thereby benefiting the community at large. This will cost the government about HK$350 million a year.

To align the duty-free quantities of tobacco and liquor that local residents and visitors are allowed to bring in when entering Hong Kong.

As the government's fiscal position in 2006-07 is considerably better than our original estimates, the following one-off rebate measures are proposed:

w to waive 50 percent of salaries tax and tax under personal assessment assessed for 2006-07, subject to a ceiling of HK$15,000. The waived amount will be deducted from the taxpayer's final tax payable for that year. This will cost the government about HK$8.1 billion in 2007-08;

w to waive rates for the first two quarters of 2007- 08, subject to a ceiling of HK$5,000 a quarter. Over 99 percent of domestic properties and 86 percent of non-domestic properties will be subject to no rates in these two quarters. This will cost the government HK$5.2 billion in 2007- 08;

w to provide one additional month of standard rate payments for CSSA recipients and one additional month of allowance for recipients of Old Age Allowance and Disabilities Allowance. This will benefit over 1 million people and cost the government about HK$1.5 billion.

To revise the income-sharing arrangement between the fiscal reserves and the Exchange Fund to increase our investment income and enhance its stability.

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