Profits Tax | Salaries Tax | Notification Requirements of Employers | Property Tax | Personal Assessment | Advance Ruling | Objections | Appeals to the Board of Review | Appeals to the Courts | Business Registration | Stamp Duty | Estate Duty | Betting Duty | Hotel Accommodation Tax | Tax Reserve Certificates
The Department raises revenue through
taxes, duties and fees in accordance with the relevant legislation. While the
duties and fees collected for a year are based on the actual results of the
year, the Earnings and Profits Tax assessed are principally computed by reference
to the incomes/profits of the taxpayers in the previous year. In 2001-02, the
Earnings and Profits Tax assessed increased by $6.6 billion (8%), as compared
with the previous year. On the other hand, the total of duties and fees collected
during the year dropped by 11%.
Profits Tax is levied on individuals, corporations, bodies of persons and partnerships, in respect of assessable profits arising in or derived from Hong Kong. In 2001-02, the Profits Tax rates for corporations and non-corporate persons remained unchanged at 16% and 15% respectively.
Reflecting a gradual recovery of the economy in 2000-01, Profits Tax of $48.8 billion was assessed during the year, representing an increase of $4.1 billion (9%) over the figure for the previous year (Figure 5). Of the total tax assessed, the property and banking sectors together contributed 36.4% (Figure 6). Further statistics relating to the tax assessed in respect of different business sectors are shown in Schedules 3 and 4.
|Type of tax||1998-99 (Dollars billion)||1998-99 (Dollars billion)||2000-01 (Dollars billion)||2001-02 (Dollars billion)|
Salaries Tax is charged on all income
arising in or derived from Hong Kong from any office (e.g. a directorship),
employment or pension. The total tax payable is restricted to an amount not exceeding 15%
(i.e. the standard rate of Salaries Tax) of the net total income (without allowances) of the individual concerned.
As compared with the previous year, the number of assessments made decreased slightly. However, as a result of an increase in the average level of income in 2000-01, 8.6% more tax was assessed than in the previous year (Figure 7). Analyses of tax assessed and allowances granted in respect of taxpayers at various income levels are provided in Schedules 5 and 6.
|Number (in thousands)||2,250||2,165||2,121||2,092|
|Tax assessed (Dollars billion)||26.7||26.5||28.6||31.0|
With the increase in the level of salaries, there was an increase of 15% in the number of standard rate taxpayers, from 11,602 last year to 13,343 this year. These taxpayers contributed 24% of the Salaries Tax assessed (Figure 8).
|Percentage of standard rate taxpayers||1%||1.1%|
|Percentage of Salaries Tax assessed||21.6%||24.0%|
Notification Requirements of Employers
Apart from reporting commencements and cessations of employments, employers are required to prepare annual returns to report the emoluments of each of their employees. In 2001-02, 216,682 employers filed employer's returns with the Department. During the year, the Department continued its past practice of conducting seminars to assist new employers in completing the returns. In February 2002, letters were sent to 38,552 new employers inviting them to attend seminars which were held at the Concert Hall of the City Hall on 10 April 2002.
Property owners (including Corporations) are subject to Property Tax which is charged at the standard rate of 15% in respect of the net assessable value of the property. Incorporated and unincorporated businesses that pay Property Tax in respect of their business premises can have such payments set off against their Profits Tax liabilities. As for corporations, income arising from properties owned by them is also subject to Profits Tax at the corporate rate. To obviate the need for yearly setoff of Property Tax against Profits Tax, a corporation can apply for exemption of Property Tax on the property concerned. Statistics on the classification and ownership of properties, based on the records of the Department, are provided in Schedule 7. The number of assessments made during the year decreased by 3.3%, as compared with the previous year. Reflecting reduction in rental income, the amount of Property Tax assessed dropped by 3.9% (Figure 9).
|Number (in thousands)||471||474||488||472|
|Tax assessed (Dollars billion)||1.55||1.45||1.36||1.31|
An individual may elect Personal Assessment in respect of his or her total income. Under Personal Assessment, all of the income of the taxpayer and his or her spouse is aggregated into a single sum and, after the deduction of all allowances, is assessed at the marginal tax rates. In appropriate circumstances, this reduces the total tax liability of the individual (e.g. an individual who would otherwise be chargeable at the standard rate on each separate income source). As a result of an increase in the number of elections, the number of assessments made in 2001-02 was 2.4% more than the previous year. The amount of tax assessed increased by 2.8% (Figure 10).
|Number (in thousands)||367||341||355||364|
|Tax assessed (Dollars billion)||4.00||3.27||3.53||3.63|
The advance ruling service allows a person to apply for a ruling on how a provision of the Inland Revenue Ordinance applies in relation to a particular arrangement.
A fee is charged for the service on a "cost recovery" basis. Initially, the applicant is required to pay an application fee of $30,000 for a ruling concerning the "Territorial Source Principle", or $10,000 for a ruling on any other matter.
The Department endeavours to provide a ruling within 6 weeks of the date of application, provided that all relevant information is furnished with the application and further consultation with the applicant is not required.
During the year, 77 advance ruling applications were processed (Figure 11). Most of the applications were for rulings on Profits Tax matters.
|Number of Applications||2000-01||2001-02|
|Awaiting decision at the beginning of the year||17||6|
|Add: Applications received during the year||81||78|
|Less: Disposed of - Ruling made||79||66|
|Less: Disposed of - Application withdrawn||6||8|
|Less: Disposed of - Ruling declined||7||3|
|Awaiting decision at the end of the year||6||7|
A taxpayer who is aggrieved by an assessment made under the Inland Revenue Ordinance may lodge an objection to the Commissioner. A significant proportion of the objections received each year arise from estimated assessments issued to taxpayers who fail to lodge returns in time. An objection of this nature must be supported by a completed return and, where applicable, by supporting accounts. Most of these objections are settled promptly by reference to the returns submitted. Most of the other types of objections are also settled by agreement between the taxpayers and the assessors concerned. Only a small percentage of objections are ultimately referred to the Commissioner for determination. During the year, the Department processed over 70,000 objections (Figure 12).
|Number of Objections||2000-01||2001-02|
|Awaiting settlement at the beginning of the year||20,762||21,781|
|Add: Received during the year||69,822||70,203|
|Less: Disposed of - Settled or withdrawn||67,848||68,407|
|Less: Disposed of - Assessment confirmed||502||534|
|Less: Disposed of - Assessment reduced||276||252|
|Less: Disposed of - Assessment increased||164||175|
|Less: Disposed of - Assessment annulled||13||18|
|Awaiting settlement at the end of the year||21,781||22,598|
Appeals to the Board of Review
A taxpayer who is dissatisfied with the Commissioner's determination of his objection may appeal to the Board of Review (Inland Revenue Ordinance) to have the Commissioner's determination reviewed. As at 31 March 2002, the Board consisted of a chairman and 9 deputy chairmen who have legal training and experience as well as 142 other members. During the year, the Board processed 291 appeals (Figure 13).
|Appeals to the Board of Review||Number|
|Awaiting hearing or decision as at 1 April 2001||145|
|Add: Lodged during the year||257|
|Less: Disposed of -Withdrawn||91|
|Less: Disposed of -Assessment confirmed||115|
|Less: Disposed of -Assessment reduced in full||10|
|Less: Disposed of -Assessment reduced in part||46|
|Less: Disposed of -Assessment increased||22|
|Less: Disposed of -Assessment annulled||2|
|Less: Disposed of -Others||5|
|Total number of cases disposed||291|
|Awaiting hearing or decision as at 31 March 2002||111|
Appeals to the Courts
An appellant or the Commissioner may appeal to the Courts against a decision of the Board of Review. During 2001-02, the Court of First Instance ruled on 7 cases. The issues considered included the validity of a defective assessment; the eligibility to a married person allowance and a single parent allowance; the chargeability to salaries tax of income received by an individual from service company arrangement; the chargeability of profits received from disposal of properties; and the chargeability and locality of share brokerage income.
6 of the 7 cases decided by the Court of First Instance were ruled in favour of the Commissioner. The remaining case involving the chargeability and locality of share brokerage income was remitted to the Board of Review with the opinion of the Court.
Figure 14 sets out statistics concerning appeals to the Courts for 2001-02.
|Appeals to the Courts||Court of First Instance||Court of Final Appeal||Total|
|Awaiting hearing or decision as at 1 April 2001||12||0||12|
|Add: Lodged during the year||22||1||23|
|Less: Disposed of - Decided||7||0||7|
|Less: Disposed of - Discontinued||13||0||13|
|Awaiting hearing or decision as at 31 March 2002||14||1||15|
The Department aims to maintain an efficient business registration system. Every person carrying on business in Hong Kong must register the business and pay the required fee. Registered businesses may renew their registration certificates either annually or once every 3 years. For 2001-02, the registration fee and levy for the Protection of Wages on Insolvency Fund were respectively $2,000 and $250 if paid annually, or $5,200 and $750 if paid every three years. Up to 31 March 2002, 8,486 businesses had taken the 3-year certificates.
The total number
of new and re-opened registrations in 2001-02 was 9,419 fewer than the previous
year as the economy of Hong Kong was slowing down in the year. However, the
number of cancelled registrations also fell by 1,399 (Schedule
8). Overall, the total number of actual registrations recorded a slight growth of
1,009 for the year (Figure 15).
|Number of Active Business Registration||31.3.2001||31.3.2002|
|Unincorporated Businesses Corporations||249,663||245,464|
There was a slight drop of 2.6% in the
number of certificates issued, resulting in a decrease of some $60 million in
the amount of business registration fees collected (Figure
|Certificates issued and Fees collected||2000-01||2001-02||Percentage decreased|
|Number of certificates issued (Main and Branch)||703,075||685,140||-2.6%|
|Fees (inclusive of penalties) (Dollars million)||1,300.7||1,240.2||-4.7%|
A small business with sales or receipts below a specified limit ($10,000 for a business mainly deriving profits from the sale of services or $30,000 for other businesses) may apply for exemption from payment of the fee and levy. The number of exemptions granted during the year was 10,622. This represents an increase of 18% over the previous year.
Where an application for exemption is not allowed, the business operator may appeal to the Administrative Appeals Board. 6 appeals were received by the Board during the year but all of them were subsequently withdrawn by the appellants (Figure 17).
|Awaiting hearing as at 1 April 2001||1|
|Add : Lodged during the year||6|
|Less : Appeal dismissed||1|
|Less : Appeal withdrawn||6|
|Awaiting hearing as at 31 March 2002||0|
Stamp Duty is charged on instruments effecting property and stock transactions and leasing of property (Figure 18).
The property market remained sluggish in the year 2001-02, and the duty
collected from property transactions dropped by 11.7%.
The stock market was also less active than the preceding year. This, coupled with a 11% deduction in the stamp duty rate on stock transactions since September 2001, led to a reduction of 29.4% in duty collected from stock transactions. Overall, there was a 20.8% fall in total stamp duty collection during the year as compared with the previous year (Figure 19 and Schedule 9). The number of documents stamped dropped slightly by 2.6% (Schedule 10).
|Compositions||2000-01 (Dollars million)||2001-02 (Dollars million)||Percentage decreased|
Estate Duty is charged on that part of a deceased person's estate situated in Hong Kong. The threshold for levying duty is $7.5 million, and the duty rates range from 5% to 15%, depending on the value of the estate.
Figures 20 and 21 show the composition of estates and cases processed for the past two years.
|Composition of Estates||2000-01||2001-02|
|Estate Duty cases||2000-01||2001-02|
|Cases finalized - Dutiable||318||302|
|Cases finalized - Exempt||13,246||14,399|
|Total cases finalized||13,564||14,701|
Estate Duty of $1.927 billion was collected during the year (Schedule 11), an increase of $425 million (28%) over that of the previous year.
As Estate Duty is payable on delivery of an estate duty affidavit or account (or within 6 months from the date of the deceased's death, whichever is the earlier), $1,676 million was received during the year in advance of the issue of formal assessments (Schedule 12).
Betting Duty is charged on bets made on totalisators at race meetings conducted by the Hong Kong Jockey Club and on the proceeds of lotteries conducted by the Hong Kong Lotteries Board.
In 2001-02, the rates of duty remained
unchanged (Figure 22).
|Type of bets||Details of bets||Rates|
|Standard Bets||win, place, double, quinella and quinella place||12%|
|Exotic Bets||six up, treble, tierce, trio, double trio and triple trio||19%|
During the year, both racing attendances and bets were on the decline (Schedule 13), resulting in a drop of 7.5% in the duty collected from horse racing. As lotteries duty collection also fell by 16.4%, the total betting duty collected in 2001-02 was 8.4% less than that of the previous year (Figure 23).
|Betting Duty collections||
Hotel Accommodation Tax
Hotel Accommodation Tax is imposed on hotel and guest house accommodation at the rate of 3% of the accommodation charges paid by guests. The tax is collected quarterly in arrears.
In 2001-02, there
was a slight drop of 0.5% in the number of taxable rooms despite a slight increase
in the number of hotels and boarding houses operating in Hong Kong. (Figure 24).
The reduction in room charges (Schedule
14), together with a decrease of 4.6% in room occupancy rate (Figure
25), resulted in a drop of 8.8% in the tax collected, as compared with
the previous year (Figure 26).
|Number||2000-01||2001-02||Increase / Decrease|
|Hotels and Boarding Houses||156||158||+1%|
Collections (Dollars million)
Tax Reserve Certificates
There are two sets of circumstances under which Tax Reserve Certificates are purchased.
The first applies to taxpayers who wish to save for the payment of their future tax liabilities. Two service schemes are offered to these taxpayers: the 'Electronic Tax Reserve Certificates Scheme' for all taxpayers and the 'Save-As-You-Earn' (SAYE) Scheme for civil servants and civil service pensioners. Under the Electronic Tax Reserve Certificates Scheme, certificates can be purchased using various electronic means, i.e. by bank autopay, telephone, the Internet, public information kiosk and bank ATM. Under the SAYE Scheme, certificates are purchased by civil servants and civil service pensioners through monthly deductions from their salaries / pensions. Interest is payable on the certificates when they are redeemed for settlement of tax liabilities, based on the interest rate prevailing at the time of purchase, for a maximum period of 36 months from the date of purchase.
In 2001-02, while there was an increase of 23% in the number of certificates sold under the Electronic Tax Reserve Certificates Scheme, there was a slight drop of 2% in the sale of certificates under the SAYE Scheme (Schedule 15). The total amount involved increased by 16% (Figure 27).
The second situation applies to taxpayers who object to tax assessments and are required to purchase Tax Reserve Certificates in respect of the tax in dispute. Such certificates are used to settle any tax found payable upon the finalization of the objection or appeal. Interest is only payable on the amount, if any, subsequently required to be repaid to the taxpayer, and is computed at floating rates ruling over the tenure of the certificate.
|Number||Value (Dollars million)||Number||Value (Dollars million)|
|Certificates relating to Objections and Appeals||799||1,218.2||794||2,531.7|
|Certificates other than Objections and Appeals||87,300||352.4||91,289||410.3|
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(Last updated/reviewed : November 24, 2004)