(Source : Government Information Centre)
LegCo passes the Revenue (Abolition of Estate Duty) Bill 2005
The Legislative Council today (November 2) passed the Revenue (Abolition of Estate Duty) Bill 2005 which seeks to amend the Estate Duty Ordinance to implement the proposal announced in the 2005-06 Budget to abolish estate duty.
The Secretary for Financial Services and the Treasury, Mr Frederick Ma, when moving the resumption of the Second Reading of the ordinance, said that apart from removing the unfairness and obstacles arising from the collection of estate duty, another key objective of the proposed abolition was to facilitate the further development of Hong Kong as an important asset management centre.
The Government consulted the public last year on whether to abolish estate duty. By and large, the majority view tended to support abolition.
Mr Ma said: "By abolishing estate duty, we believe Hong Kong can attract more local and overseas investors to hold assets here. The abolition can further promote the development of Hong Kong as an important asset management centre. More companies and professionals will come here, and this will facilitate the further development of our asset management services, create more employment opportunities, and in turn make Hong Kong more competitive as an international financial centre. Moreover, the abolition will reduce the time taken for obtaining the grant of probate or letters of administration, thereby helping to ease cash-flow problems that heirs to an estate currently face, particularly for the general public as well as operators of small and medium enterprises.
"The abolition of estate duty is not only a tax concession but also a long term strategic investment in Hong Kong's financial services industry and the overall development of the economy," he stressed.
It is estimated that the proposal to abolish estate duty will cost the government annual revenue of around $1.5 billion. However, the Government estimated that the abolition would help promote trading in Hong Kong's financial and property markets, and contribute additional revenue from stamp duty and other taxes.
Mr Ma said: "As asset management services can foster growth in other financial activities and a series of high value-added professional services, other industries will also benefit indirectly. The community, and hence members of the public, will enjoy the subsequent economic benefits."
The Ordinance will commence operation three months from its publication in the gazette, i.e. February 11, 2006. Estates of persons who pass away on or after the commencement date of the Ordinance will not be subject to estate duty. However, it is proposed that, upon the commencement of the Ordinance, the estate duty chargeable in respect of deaths occurring on or after July 15, 2005 but before the commencement date (the interim period) would be reduced with retrospective effect to a nominal duty of $100 for estates of assessed value exceeding $7.5 million. Any estate duty overpaid will be refunded. The nominal duty is necessary to ensure that all existing legislative provisions and legal documents making reference to actual charging or payment of estate duty would not be put in doubt during the interim period.
Mr Ma said: "In the past, the assessment of estate duty and the application for grant of representation have been closely linked. These arrangements have indirectly safeguarded the interest of beneficiaries in the estate concerned. The Revenue (Abolition of Estate Duty) Ordinance enacted by the legislature today has incorporated comments and views from Legislative Council Members and organizations such as the Law Society of Hong Kong and the Hong Kong Association of Banks in order to provide a legal framework and associated measures that continue to safeguard the beneficiaries in the absence of estate duty assessment procedures."
There are five elements in the new scheme to safeguard the beneficiaries:
* to deter intermeddling with the estate without lawful authority or reasonable excuse, provisions for criminal offence have been included;
* in order not to reduce the existing safeguards for beneficiaries, the new Ordinance requires the personal representative to prepare an inventory of the estate;
* to ensure that the family or dependents of the deceased in straits can meet funeral expenses or their own living expenses, the new Ordinance amends the Probate and Administration Ordinance. New provisions are added to empower the Secretary for Home Affairs to authorize on application release of money from the deceased's bank account to meet funeral expenses or the maintenance of any person who was dependent on the deceased before his death and has an interest in the estate;
* to provide under the new Ordinance a set of measures to facilitate inspection of the safe deposit box of the deceased by the personal representative and beneficiaries before issue of the grant; and
* to include under the new Ordinance a mechanism to exempt persons dealing with small estates from the intermeddling provisions. This represents a balance between safeguarding the interest of the beneficiaries and obviating an unnecessary burden for the personal representative.
To ensure that the family or dependents of the deceased will not be affected by the changes in procedures arising from the abolition of estate duty, the law enacted today empowers the Secretary for Home Affairs to perform certain functions. These are to assist members of the public when dealing with estates of persons who passed away on or after February 11, 2006. They include -
(a) issue of a certificate for release of money to meet funeral expenses and the maintenance of dependents of the deceased who have an interest in the estate;
(b) issue of a certificate for inspection to inspect the safe deposit box of the deceased. Public officials will witness the inspection process and will assist in the preparation of the inventory of the box where necessary;
(c) issue of authorization for removal to enable the holder to remove a specified document or article from the safe deposit box; and
(d) issue of a confirmation notice to confirm the receipt of an affidavit from the personal representative declaring that the estate in question is wholly made up of money not exceeding $50,000 in value.
At present the Commissioner of Inland Revenue performs her functions and carries out the related administrative arrangements under the Estate Duty Ordinance through the Estate Duty Office. Many of these are similar to the new powers of the Secretary for Home Affairs. To ensure a smooth transition and to assist members of the public, the Secretary for Home Affairs will delegate his new powers to the Commissioner of Inland Revenue on commencement of the new Ordinance under section 43 of the Interpretation and General Clauses Ordinance. The transitional arrangement is expected to last a year. The Secretary for Home Affairs is in the process of setting up a new Estate Duty Unit to take over the relevant functions from the Inland Revenue Department. Part of the staff now servicing the Estate Duty Office of the Inland Revenue Department will be transferred to the Estate Duty Unit of Home Affairs Bureau on its set up.
In order that the above changes will not affect the personal representative and other relevant parties as far as possible, the Home Affairs Bureau will further explain to the public the various new arrangements related to the application for grant before the commencement of the new Ordinance.
Ends/Wednesday, November 2, 2005
Issued at HKT 19:17