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LCQ6: Abolition of estate duty
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Following is a question by the
Hon Jeffrey Lam and an oral reply by the Financial Secretary, Mr
Henry Tang, in the Legislative Council today (April 25):
Question:
Hong Kong has abolished estate duty
since February last year, in order to attract more foreign and local
investment, promote the development of asset management business
and boost the financial market. In this connection, will the Government
inform this Council:
(a) of the revenue from estate duty
in the 2006-2007 financial year, the difference between such revenue
and its estimated figure, as well as the reasons for the difference;
(b) whether it has calculated the
new investments from abroad and by local investors so far brought
about by the abolition of estate duty, especially those in the asset
management business; and
(c) whether it has formulated other
measures to promote the development of asset management business
for more business opportunities and employment?
Reply:
Madam President,
(a) The original estimate for estate duty collection in 2006-07
was $160 million and the provisional actual collection is $778 million.
That the estate duty collection in 2006-07 is more than the original
estimate is mainly because of the receipt of several new estate
cases during the year involving substantial amounts, the advancement
of duty payment by some estate cases, and the additional duties
paid by some large estates as a result of under-estimation of assessable
value when filing estate duty returns.
Some estates mainly consist of landed
properties but lack adequate cash and bank balances to settle the
estate duty payable. It is estimated that some personal representatives
of such estates may have taken advantage of the recent boom in the
property market to sell the properties in the estates, and advanced
the duty payment. Consequently, the estate duty collection in 2006-07
is more than the original estimate.
(b) As regards the amount of investments
brought to Hong Kong by the abolition of estate duty, especially
those in asset management business, investment decisions are often
influenced by many factors and it is difficult to give an accurate
assessment on the additional amount of investment induced by the
abolition of estate duty alone. Nevertheless, the industry generally
agrees that the abolition of estate duty has generated a positive
impact and is conducive to the long-term development of our asset
management business and the financial sector as a whole. Our asset
management business and investment environment have also become
even more attractive and competitive following the abolition of
the tax. We also understand from the banking trade that many private
banking clients have relocated their overseas assets back to Hong
Kong after the abolition.
With the abolition of estate duty
and the support of government policies, coupled with the continued
promising economic outlook and improving business environment, Hong
Kong has become increasingly attractive to local, Mainland and overseas
investors.
On asset management business, there
had been a growth of 25% in Hong Kong's combined fund management
business, from HK$3,618 billion in 2004 to HK$4,526 billion in 2005.
Moreover, 79% of the assets managed in Hong Kong were invested in
Asia, including Hong Kong and the Mainland, representing an increase
of 28% compared with the figure in the previous year. Although figures
for 2006, i.e. the year of abolition of estate duty, are yet to
be released, we can make reference to other figures to assess the
recent performance of our financial services industry.
On authorised funds and authorised
hedge funds, the gross sales of mutual funds in Hong Kong amounted
to US$24.3 billion in 2006, representing a substantial increase
of 72% from US$14.1 billion in 2005. In 2006, the Security and Futures
Commission (SFC) authorized more than 200 new unit trusts and mutual
funds. The total asset under management of all authorized funds
increased from US$66.7 billion in end-2005 to US$91 billion in end-2006,
representing a growth of over 36%. The business of authorized hedge
funds also continues to flourish. The net asset size of the 14 hedge
funds authorized by the SFC also increased further to US$1.66 billion,
up notably by 60% from US$1.04 billion in end-2005.
On bank deposits, while the average
growth rate of bank deposits in Hong Kong was only 3% in the past
5 years (from 2001 to 2005), bank deposits increased by 17% in 2006
to $4,762.2 billion. Furthermore, Hong Kong's direct foreign investments
in 2006 amounted to HK$333.2 billion, up by over 27% from 2005.
The total assets of the investment portfolios of private bank clients
of banks authorized by SFC to conduct asset management business
also increased by 31% in 2006, compared with 16% in 2004 and in
2005.
While investment decisions are influenced
by many factors, the above information helps to show that following
the abolition of estate duty, there are significant development
in both Hong Kong's asset management and the financial services
industry as a whole.
(c) To further promote the development
of asset management business in Hong Kong, the Government and the
SFC will continue to adopt multi-pronged measures, including:
(1) Facilitation of Market Development
and Innovation of Investment Products
To further promote the development
of our asset management business, we must provide a business-friendly
environment for fund houses to operate their businesses in Hong
Kong and provide more choices of investment products for investors.
The SFC will continue to liaise closely with the fund management
industry, review its regulatory policies from time to time, and
streamline the current approval procedures as far as possible to
facilitate the development of new investment products.
(2) Tax Measures
Apart from the abolition of estate
duty, we have exempted offshore funds from profits tax since last
year. This measure will attract new offshore funds to come here
and encourage existing funds to continue to invest in Hong Kong,
which will lead to an increase in market liquidity as well as employment
opportunities in the financial services and related sectors. Downstream
service sectors such as brokers, accountants, banks and lawyers
will also benefit.
(3) Promoting the Industry
Over the past year, the Administration,
in conjunction with the financial services sector, visited a number
of places to promote Hong Kong's asset management business and our
strengths as an international financial centre. We will continue
to promote Hong Kong as a platform for global investment and our
diversified financial services to various overseas markets and Mainland
provinces and cities.
(4) Human Resources Development
Adequate and high quality human resources
are crucial to the development of our asset management industry
which requires experts in different fields, e.g. fund managers,
economic analysts, lawyers and accountants. In this connection,
the Government has set up the Advisory Committee on Human Resources
Development in the Financial Services Sector comprising members
from industry organizations, professional bodies, regulatory bodies,
training institutions and the relevant policy bureaux. We will continue
to enhance talent training and planning in order to maintain our
competitiveness as an asset management centre.
Looking ahead, with the rapid development
of Mainland's economy, the Government will continue to develop Hong
Kong as our country's international financial centre, establish
a complementary, cooperative and interactive relationship with the
mainland markets, promote our strengths as an asset management centre,
and seize new business opportunities in the Mainland for our asset
management industry.
Early this month, the SFC signed
a Memorandum of Understanding with the China Banking Regulatory
Commission for regulatory cooperation with respect to Mainland commercial
banks conducting overseas wealth management business on behalf of
their clients (i.e. QDII). The SFC and the Hong Kong Monetary Authority
will continue to maintain close co-operation and communication with
the relevant authorities in the Mainland, and capitalize on Hong
Kong's strengths in enhancing our role as an investment platform
and bridge for the flow of investment from the Mainland to the international
market. Through the Closer Economic Partnership Arrangement (CEPA),
we will also continue to help the industry explore the opportunities
of the Mainland market with a view to facilitating the further development
of our asset management industry.
Ends/Wednesday, April 25, 2007
Issued at HKT 13:35
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