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Legislative Council Passes Revenue (No. 2) Bill 2003

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The Revenue (No.2) Bill 2003, which seeks to implement the revenue proposals related to salaries tax, profits tax and property tax announced in the 2003-04 Budget, was passed at the Legislative Council today (June 25).

The proposals are estimated to raise around $10 billion in a full year, helping to alleviate the budget deficit and restore to fiscal balance by 2006-07. The proposals on salaries tax will also help widen tax base by bringing 90,000 more taxpayers into the tax net.

After passage of the Bill, the standard rate under salaries tax, the property tax rate and the profits tax rate for unincorporated business will be increased from 15% to 15.5% in assessment year 2003/04 and to 16% in assessment year 2004/05. Under salaries tax, the marginal rates under salaries tax will be changed from 2%, 7%, 12% and 17% to 2%, 7.5%, 13% and 18.5% in 2003/04 and then further to 2%, 8% 14% and 20% in 2004/05, while the tax bands will be narrowed from $35,000 each step to $32,500 in 2003/04 and then to $30,000 in 2004/05. Basic and single parent allowances will be adjusted downward from $108,000 to $104,000 and married person's allowance will be adjusted downward from $216,000 to $208,000 in 2003/04 and be reduced by equal amounts in 2004/05.

The effects of the proposals will basically be restoring levels of the tax rates and personal allowances under salaries tax to their levels before the 1998/99 tax concessions, except for the standard rate which was 15% pre-1998/99.

During the Second Reading Debate of the Bill, the Secretary for Financial Services and the Treasury, Mr Frederick Ma, said "The Government appreciates that the adjustments to salaries tax will have a direct bearing on people's lives. To alleviate the impact of the changes on taxpayers, the Government has therefore proposed the phasing of adjustments, retaining of all dependents' allowances and all deductions at their existing levels without any downward adjustments."

Referring to the tax rebate under the Severe Acute Respiratory Syndrome (SARS) - related concession package, Mr Ma said "For close to 800,000 taxpayers or around 60% of all taxpayers, they will begin to receive a tax rebate starting from July 10 which shall be of an amount greater than the increase in their tax liabilities under salaries tax or personal assessment in 2003/04".After full implementation of the adjustments, the effective rate of salaries tax on taxpayers will be around 8% on average.

The exemption for holiday warrants and passage, the only income which was exempt from salaries tax previously, will be removed from assessment year 2003/04 onwards.

The profits tax rate for corporations will be increased from 16% to 17.5% effective from assessment year 2003/04. "We believe that a slight upward adjustment in the profits tax rate and the deeming assessable profits rate for certain royalties and licence fees payments will not hurt Hong Kong's competitiveness, as investors continue to be attracted to Hong Kong to set up businesses because of our low, simple and predictable taxation regime, which will remain as one of the cornerstones of Hong Kong's system," Mr Ma said.

By virtue of the same legislation, donations to recognised charitable institutions may be deducted for as much as 25% of the taxpayer's net assessable income or profits from 2003/04 onwards.

End/Wednesday, June 25, 2003

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