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 2002-03, the
Earnings and Profits Tax assessed dropped by $7.9 billion (9%), as compared
with the previous year. The total of duties and fees collected also fell by
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 2002-03, the Profits Tax rates for corporations and non-corporate persons remained unchanged at 16% and 15% respectively.
Reflecting Reflecting a downward adjustment of the economy towards the latter half of 2001, Profits Tax of $41.3 billion was assessed during the year 2002-03, representing a decline of $7.5 billion (15%) from that assessed in the previous year (Figure 5). Of the total tax assessed, the property and banking sectors together contributed 36.3% (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)||2000-01 (Dollars billion)||2001-02 (Dollars billion)||2002-03 (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 increased slightly. However, 0.2% less 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)||2,165||2,121||2,092||2,108|
|Tax assessed (Dollars billion)||26.5||28.6||31.0||31.0|
With the decrease in the level of salaries, there was a decrease of 7.6% in the number of standard rate taxpayers, from 13,343 last year to 12,328 this year. These taxpayers together contributed 21.5% of the Salaries Tax assessed, compared to 24.0% last year (Figure 8).
|Percentage of standard rate taxpayers||1.1%||1.0%|
|Percentage of Salaries Tax assessed||24.0%||21.5%|
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. During the year, 215,471 employers filed employer's returns with the Department.
The Department perceives seminars on the Internet as a more effective means to promote tax compliance by employers than holding seminars in community halls. Merits are :
The first "e-Seminar for Employers" was uploaded in April 2003.
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 increased by 1.0%, as compared with the previous year. Reflecting a general reduction in rental income, the amount of Property Tax assessed dropped by 5.1% (Figure 9).
|Number (in thousands)||474||488||472||476|
|Tax assessed (Dollars billion)||1.45||1.36||1.31||1.24|
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 a decrease in the number of elections, the number of assessments made in 2002-03 was 5.9% less than the previous year. The amount of tax assessed decreased by 7.0% (Figure 10).
|Number (in thousands)||341||355||364||342|
|Tax assessed (Dollars billion)||3.27||3.53||3.63||3.37|
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, 68 advance ruling applications were processed (Figure 11). Most of the applications were for rulings on Profits Tax matters.
|Number of Applications||2001-02||2002-03|
|Awaiting decision at the beginning of the year||6||7|
|Add: Applications received during the year||78||70|
|Less: Disposed of - Ruling made||66||56|
|Less: Disposed of - Application withdrawn||8||6|
|Less: Disposed of - Ruling declined||3||6|
|Awaiting decision at the end of the year||7||9|
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 arises from estimated assessments issued to taxpayers who have failed 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 taxpayer and the assessor. Only a small percentage of objections are ultimately referred to the Commissioner for determination. During the year, the Department processed over 77,000 objections (Figure 12).
|Number of Objections||2001-02||2002-03|
|Awaiting settlement at the beginning of the year||21,781||22,598|
|Add: Received during the year||70,203||79,548|
|Less: Disposed of - Settled or withdrawn||68,407||76,723|
|Less: Disposed of - Assessment confirmed||534||482|
|Less: Disposed of - Assessment reduced||252||265|
|Less: Disposed of - Assessment increased||175||164|
|Less: Disposed of - Assessment annulled||18||13|
|Awaiting settlement at the end of the year||22,598||24,499|
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 2003, 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 225 appeals (Figure 13).
|Appeals to the Board of Review||Number|
|Awaiting hearing or decision as at 1 April 2002||111|
|Add: Lodged during the year||212|
|Less: Disposed of -Withdrawn||61|
|Less: Disposed of -Assessment confirmed||103|
|Less: Disposed of -Assessment reduced in full||14|
|Less: Disposed of -Assessment reduced in part||28|
|Less: Disposed of -Assessment increased||13|
|Less: Disposed of -Assessment annulled||4|
|Less: Disposed of -Others||2|
|Total number of cases disposed||225|
|Awaiting hearing or decision as at 31 March 2003||98|
Appeals to the Courts
The appellant or the Commissioner may appeal to the Courts against a decision of the Board of Review. During 2002-03, the Court of First Instance and the Court of Appeal ruled on 4 cases and 2 cases respectively. The issues considered by the Courts included whether profits received from disposal of properties were taxable; whether payment to an employee was an allowance or rent reimbursement; whether fees in respect of an underwriting contract relating to the sales of properties located in the PRC were taxable; whether the taxpayer could claim a married person allowance and a single parent allowance; and whether income received by an individual from service company arrangement was chargeable to Salaries Tax. The Court of First Instance ruled the 4 cases in favour of the Commissioner. The Court of Appeal also confirmed the 2 decisions in favour of the Commissioner as previously decided by the Court of First Instance.
Figure 14 sets out statistics concerning appeals to the Courts for 2002-03.
|Appeals to the Courts||Court of First Instance||Court of Appeal||Court of Final Appeal||Total|
|Awaiting hearing or decision as at 1 April 2002||14||1||0||15|
|Add: Lodged during the year||9||2||0||11|
|Less: Disposed of - Decided||4||2||0||6|
|Less: Disposed of - Discontinued||12||0||0||12|
|Awaiting hearing or decision as at 31 March 2003||7||1||0||8|
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. Up to 31 March 2003, 8,755 businesses had taken the 3-year certificates.
As a budgetary measure to reduce the operating cost of business, the business registration fee was waived in 2002-03. For those who elected for 1-year certificates, the business and branch registration fees were waived. For 3-year certificates, registration fees were reduced by $2,000 and $73 to $3,200 and $116 respectively. The concessionary rates applied to certificates commencing during the period 1 April 2002 to 31 March 2003.
Businesses which had already paid registration fees for 2002-03 and were not required to renew their registration certificates during the year could apply for concessionary refund on a pro-rata basis before 30 September 2003. They included businesses holding 3-year certificates with expiry dates on or before 31 March 2003 and ceased businesses or ceased branches, which last held a registration certificate with an expiry date between 1 April 2002 and 31 March 2003. Up to 31 March 2003, the Department had issued a total of 49,806 application forms to businesses eligible to make the application, of which 13,482 had been returned. 10,343 successful applicants had been issued with refunds totaling $12.03 million.
Despite the waiver of registration fees in 2002-03, business operators were still required to pay the levy for the Protection of Wages on Insolvency Fund when they renewed their registration certificates. For the first time since 1991, the levy was adjusted upward on 16 May 2002, from $250 to $600 for 1-year certificates and from $750 to $1,800 for 3-year certificates. It was expected that the adjustment could bring in more than $200 million a year for the Fund.
The waiver of business
registration fee had brought the number of new registrations in 2002-03 up by
25,924. The number of cancelled registrations during the year also fell by 8,827
(Schedule 8). The total number
of active registrations recorded a significant growth of 35,442 for the year
(Figure 15). Whilst the number of certificates issued
increased by 8.6%, the total amount of business registration fees collected
in the year dropped to $127 million (Figure 16),
in consequence of the waiver.
|Number of Active Business Registration||31.3.2002||31.3.2003|
|Unincorporated Businesses Corporations||245,464||263,518|
|Certificates issued and Fees collected||2001-02||2002-03||Increase/
|Number of certificates issued (Main and Branch)||685,140||743,880||8.6%|
|Fees (inclusive of penalties) (Dollars million)||1,240.2||127.7||-89.7%|
Under the Business Registration Ordinance, 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) could apply for exemption from payment of the fee and levy. The number of total exemptions granted during the year was 8,381, representing a decrease of 21% from the previous year.
Where an application for exemption is not allowed, the business operator may appeal to the Administrative Appeals Board. 2 appeals were received by the Board in 2002-03, of which 1 was dismissed and the other was subsequently withdrawn by the appellant (Figure 17).
|Awaiting hearing as at 1 April 2002||0|
|Add : Lodged during the year||2|
|Less : Appeal dismissed||1|
|Less : Appeal withdrawn||1|
|Awaiting hearing as at 31 March 2003||0|
Stamp Duty is charged on instruments effecting property and stock transactions and leasing of property (Figure 18).
Both the property and stock markets remained sluggish during 2002-03. The Stamp Duty collection from property and share transactions decreased by 5.9% and 22.6% respectively as compared with the previous year. Overall, there was a 13.7% drop in total Stamp Duty collection (Figure 19 and Schedule 9). The number of documents stamped, however, increased slightly by 5.4% (Schedule 10).
|Compositions||2001-02 (Dollars million)||2002-03 (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||2001-02||2002-03|
|Estate Duty cases||2001-02||2002-03|
|Cases finalized - Dutiable||302||298|
|Cases finalized - Exempt||14,399||15,047|
|Total cases finalized||14,701||15,345|
Estate Duty of $1.402 billion was collected during the year (Schedule 11), a decrease of $525 million (27%) compared with 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), $1.147 billion
was received during the year in advance of the issue of formal assessments (Schedule
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 2002-03, 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, racing bets were on the decline despite an increase in racing attendances (Schedule 13), resulting in a drop of 7.6% in the duty collected from horse racing. Although lotteries duty collection increased by 14.5%, the total Betting Duty collected in 2002-03 was 5.6% 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 and is collected quarterly in arrears.
2002-03, there was an increase in the number of hotels and boarding houses operating
in Hong Kong, resulting in an increase of 3.6% in the number of taxable rooms
(Figure 24). The room occupancy rate also increased
by 4.4% (Figure 25), but the tax collected was 0.9%
less than that collected in the previous year (Figure 26).
This was mainly due to the reduction in room charges (Schedule
|Number||2001-02||2002-03||Increase / Decrease|
|Hotels and Boarding Houses||158||161||+1.9%|
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 2002-03, while there was an increase of 25% in the number of certificates sold under the Electronic Tax Reserve Certificates Scheme, there was a slight drop of 3% in the sale of certificates under the SAYE Scheme (Schedule 15). The total amount involved decreased by 12% (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||794||2,531.7||868||2,093.1|
|Certificates other than Objections and Appeals||91,289||410.3||96,691||361.9|
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(Last updated/reviewed : November 24, 2004)