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LCQ24: Tax deductions in respect of contributions
to Mandatory Provident Fund Scheme or Recognized Occupational Retirement
Scheme
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Following is a question by the Hon Ho Chun-yan and a written reply
by the Secretary for Financial Services and the Treasury, Mr Frederick
Ma, in the Legislative Council today (January 26):
Question :
Under the Inland Revenue Ordinance (Cap. 112), an employee may claim
a deduction from his assessable income in respect of his contributions
to a Mandatory Provident Fund Scheme (MPFS) or Recognized Occupational
Retirement Scheme (RORS), and the maximum amount deductible is equivalent
to the mandatory contribution cap. However, an employee who is unaware
of the above provisions and hence has not claimed a deduction may
have to pay more tax. According to the Annual Report of the Inland
Revenue Department (IRD), there were about 1 205 000 taxpayers in
the year of assessment 2001-02. Nevertheless, in reply to a Member's
question at the Legislative Council meeting on 3 November last year,
the Government advised that there were only about 822 000 claims
for deductions in respect of such contributions in that year of
assessment. In this connection, will the Government inform this
Council:
(a) of the reasons for the number of taxpayers exceeding the number
of people claiming deductions of such contributions by more than
380 000 in the above year of assessment; and
(b) whether it will consider requiring employers to report the amounts
of employees' contributions to a MPFS or RORS on the Employer's
Return of Remuneration and Pensions, so as to remind their employees
that they can claim deductions in respect of such contributions
and to facilitate verification of the amounts of such contributions
by IRD; if not, the reasons for that?
Reply:
Madam President,
(a) Under the Inland Revenue Ordinance (Cap. 112)(IRO), a taxpayer
may claim a deduction from his assessable income in respect of his
contributions to a Mandatory Provident Fund Scheme (MPFS) or Recognized
Occupational Retirement Scheme (RORS). However, not all salaries
taxpayers (which include employed persons and pensioners, totalling
1 205 000) have incurred MPFS or RORS related expenses and are eligible
for such a deduction. Some main categories of taxpayers who do not
need to make any contribution to MPFS or RORS and thus are not eligible
for deductions are as follows:
(i) Some 149 000 taxpayers are civil servants. A great majority
of these persons are covered by the Civil Service Pension System
and thus do not need to make any contributions to MPFS or RORS.
(ii) Some 19 000 taxpayers are ex-civil servants receiving pensions
(Note 1). These taxpayers do not need to contribute to any recognized
retirement schemes.
(iii) Some of the 480 000 (Note 2) employees who have joined an
MPF-exempted RORS may be liable to pay salaries tax but may not
need to make any contribution to the schemes because some of the
schemes are only funded by employers' contributions. But we do not
have the breakdown on how many actually pay salaries tax.
(iv) Among the 45 000 (Note 3) expatriates who do not have the right
of abode in Hong Kong and are covered by overseas retirement schemes
or who work in Hong Kong for not more than 13 months and therefore
do not need to make contributions to MPFS or RORS, some may be liable
to tax. However, we do not have statistics on how many actually
pay salaries tax.
The foregoing helps to explain the discrepancy between the number
of taxpayers (1 205 000) and the number of claimants for deduction
(822 000). We believe that the number of taxpayers eligible for
deduction but who have not claimed this should not be significant.
In cases where a taxpayer fails to make a deduction claim for some
reason, he may provide evidence and make a supplementary application
within six years of the year of assessment concerned, if his failure
is due to an error or omission.
(b) Under the IRO, it is the right and responsibility of taxpayers
to claim for deductions. It is the Administration's policy to encourage
taxpayers to understand their rights under the tax laws and make
claims for deduction in their tax returns. IRD makes use of various
means to publicise such rights to taxpayers. Apart from providing
a specific part (part 4.3) in the tax return to allow the taxpayer
to make an application for the deduction of retirement contributions,
and elaborate explanations in the Guide to Tax Return sent with
the tax returns, IRD also provides taxpayers, through the pamphlets
issued and the internet, detailed explanations of matters relating
to contributions to recognised retirement schemes.
In addition, employers are required under the MPF legislation to
issue to their employees a monthly record of MPF contribution, specifying
the amount of relevant income paid to the employees, the amount
of mandatory and voluntary contribution made by the employers and
the amount of mandatory and voluntary contribution deducted in respect
of the employees. This monthly record provides the employee with
clear information to assist him in calculating the amount of his
contribution for the purpose of making a claim for tax deduction.
Under the IRO, application for a deduction has to be made by the
taxpayer himself. The process of making a deduction claim by the
taxpayer cannot be dispensed with even if it is required that the
amount of the employee's contribution to MPF is reported by the
employer in the Employers' Return.
In view of the above, we do not consider it necessary to require
employers to report the amounts of employees' contributions to a
MPFS or RORS on the Employer's Return on top of the present arrangements.
Note 1: Retired persons receiving a pension are liable to salaries
tax under section 8(1)(b) of the IRO.
Note 2: Estimation provided by the Mandatory Provident Fund Schemes
Authority (MPFA) based on figures reported by Employers of MPF-exempted
ORSO Registered Schemes.
Note 3: Estimation provided by MPFA based on figures provided by
the Immigration Department. Domestic employees are excluded.
Ends/Wednesday, January 26, 2005
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