Dccreases in collected earnings and profits taxes key factor in lower intake

The government's coffers will be somewhat depleted next year after public revenues took a sharp hit from the global economic downturn, according to figures released by the Inland Revenues Department Monday.

Total revenue collected in 2009-10 fell by 6 percent to HK$179.1 billion from the previous year's figure of HK$191.5 billion, dragged down by a 16 percent drop in the total earnings and profits tax collected. The tax accounts for 69 percent of the government's total collections.

Tim Lui, tax partner of Pricewaterhouse Coopers, believes the sharp dip in profits tax was only indirectly caused by the financial crisis. "At the time of the unstable environment, companies tended to be more pessimistic and they, therefore, applied for holdover. This dragged down the revenue collected," he stressed.

Profits tax is likely to enjoy a 2 percent increase next year thanks to the economic recovery and substantially improved performance, based on corporate annual reports, the department predicts.

The sharp decline was offset a little by a 32 percent increase in stamp duty, which brought in an extra HK$10.2 billion thanks to the robust property and stock markets last year. However, the situation will not continue to be rosy. Commissioner of Inland Revenue Chu Yam-yuen admitted that this phenomenon was unusual and the property market would go back to the previous level: hence the department estimates a 29 percent decrease in stamp duty next year.

Since predicting the stock market and the property market is as uncertain as gazing into a crystal ball, the department would only make prudent estimation based on past experience, Chu added. "We cannot expect the performance of the property market to be as strong as last year."

Lui echoed Chu's comments, saying the stamp duty has surged greatly but is unlikely to see another significant advance this year.

Chu also disputed accusations that Hong Kong is a tax haven. The Legislative Council Monday passed a bill giving Hong Kong tax authorities greater power to gather information on suspected tax evaders and send the information to authorities abroad.

"We keep close contact with the Organisation of Economic Co-operation and Development (OECD) in periodic meetings. Upon completion of legislative amendments in March, Hong Kong now is able to follow the latest exchange of information standards of the OECD," Chu noted.

The department prosecuted three tax evasion cases in the last financial year. The reason behind the low numbers was the difficulty in collecting evidence, Chu said. "Before taking a case to the court, the case has to be beyond reasonable doubt and if we need to search for more evidence, we need to apply for a search warrant. But these cases are rare."

In late March, the government reached a deal with the Netherlands, Indonesia and Brunei under which taxpayers do not have to pay on income already taxed elsewhere. Hong Kong already has similar pacts with Japan, Austria, France, Hungary, Ireland and Liechtenstein.

To prevent people from cheating on property taxes, officers are closely monitoring property speculators with the help of a supercomputer, as part of efforts to catch tax dodgers. The department has identified 10,000 to 20,000 suspected cases of property speculation and succeeds in 4,000 to 6,000 cases.

In this year's budget, Financial Secretary John Tsang proposed a one-off reduction of 75 percent of salaries tax and tax under personal assessment for 2009-10, subject to a ceiling of HK$6,000. Upon enactment of the relevant legislation, the department will effect the tax reduction in this year's tax bills.

China Daily

(HK Edition 05/04/2010 page1)