Tax Information : 2008-09 Budget - Tax Concessions

In the 2008-09 Budget delivered on 27 February 2008, the Financial Secretary proposed the following tax relief measures:

1.

A one-off reduction of 75% of the 2007-08 final tax in respect of salaries tax, profits tax, property tax and tax under personal assessment, subject to a ceiling of $25,000. See One-off reduction in 2007-08 final tax for details.

2.

Tax concessions from the year of assessment 2008-09 onwards as follows:

The standard rate will be lowered from 16% to 15%, and the corporation profits tax rate from 17.5% to 16.5%.

The basic allowance and single parent allowance will be increased from $100,000 to $108,000, and married person's allowance from $200,000 to $216,000.

Tax bands will be widened from $35,000 to $40,000 each.

The deduction ceiling for approved charitable donations will be raised from 25% to 35% of adjusted assessable income or profits.

Individuals subject to Salaries Tax or Tax under Personal Assessment

Individuals subject to Salaries Tax or tax under Personal Assessment will enjoy a reduction of 75% of the final tax for the year of assessment 2007-08, subject to a ceiling of $25,000 per case. See One-off reduction in 2007-08 final tax for details.

In addition, they will benefit from the following measures from the year of assessment 2008-09 onwards:

The basic allowance and single parent allowance will be increased to their 2002/03 levels.

See Annex 1 and Annex 2 showing estimated tax savings of taxpayers by income group after implementation of the measures for 2008-09.

Businesses subject to Profits Tax

Businesses subject to Profits Tax will enjoy a reduction of 75% of the final tax for the year of assessment 2007-08, subject to a ceiling of $25,000 per case. See One-off reduction in 2007-08 final tax for details.

In addition, they will benefit from the following measures from the year of assessment 2008-09 onwards:

1.

2.

3.

FAQ : Deduction for Environmental Protection Facilities

 

Points to Note

Legislative amendments are required for implementing each of the relief measures proposed in the Budget. After enactment of the relevant legislation, the Inland Revenue Department will automatically apply the new allowances, tax rates and bands in calculating the 2008-09 provisional tax. Taxpayers are only required to complete their tax returns for the year 2007-08 in the normal manner. There is no need to make separate application for the relief measures. See Examples for typical examples showing tax savings of taxpayers liable to salaries tax when the Budget relief measures are implemented. You can use our tax computation program to calculate your tax liability under salaries tax or personal assessment under the 2008-09 Budget proposals.

In 2008-09, the deduction ceiling for approved charitable donations will be raised from 25% to 35% of the adjusted assessable income or profits. Taxpayers may apply for holding over of provisional tax if the amount of charitable donations made or to be made in 2008-09 exceeds or likely to exceed 25% of the adjusted assessable income or profits. If taxpayers made donations exceeding 25% in 2007-08, they can put down the actual amount in 2007-08 tax returns. The Inland Revenue Department will assess 2008-09 provisional tax by reference to such amount of donations.

If after taking into account the allowable amounts incurred in the basis period for the year of assessment 2008-09, the person's net chargeable income or assessable profits chargeable to provisional tax are, or are likely to be, less than 90% of those of the preceding year or of the estimated sums that the person is liable to provisional tax, the person is entitled to apply for holding over the relevant part of the provisional tax. Application for holding over of provisional tax should be lodged in writing with the Commissioner not later than (a) 28 days before the day by which the provisional tax is to be paid, or (b) 14 days after the date of the notice for payment of provisional tax, whichever is the later. The application should also state clearly the grounds for holdover.

FAQ : The 2008-09 tax concessions

One-off reduction in 2007-08 final tax

The Financial Secretary proposed a 75% reduction of the 2007/08 final tax, subject to a ceiling of $25,000 per case. Under Salaries Tax, the ceiling is applied on individual taxpayer basis. For couples electing to be jointly assessed, the ceiling is applied on each couple. Under Property Tax and Profits Tax, the ceiling is applied on each property let and each business respectively. In Personal assessment, single taxpayers will each be subject to the ceiling. Married couples must make their election for personal assessment together and the ceiling will therefore apply to each couple.

The tax reduction will benefit all taxpayers in the year, including the working population liable to salaries tax, property owners with rental income subject to property tax, and businesses and corporations liable to profits tax. Individuals electing personal assessment are also included. For example, if the final tax is $30,000, the reduction will be $22,500 with a balance of $7,500 to be paid. See Annex 3 for details of the amounts of tax savings enjoyed by taxpayers of different income group under different tax types.

The tax reduction will be reflected in the tax bill for the coming year. Taxpayers will, as usual, file their tax returns for 2007/08 which will be issued starting from the coming April and May. Upon enactment of the relevant legislation, the Inland Revenue Department will effect the reduction in the final assessment for 2007/08. Most taxpayers will receive their tax bills, with the reduction duly reflected, starting from the third quarter in 2008. As in last year, profits tax, property tax and personal assessment bills will fall due from November this year onwards, and salaries tax in January 2009.

The proposed reduction will only be applicable to the 2007/08 final tax, but not to the provisional tax of the same year. For most taxpayers, the second instalment of their 2007/08 provisional tax will fall due in April this year, which should be paid on time despite the proposed reduction. The provisional tax paid will, in accordance with the Inland Revenue Ordinance, be applied in payment of the final tax for 2007/08 and provisional tax for 2008/09. Excess balance, if any, will be refunded.

Unlike that in the last year, this year's tax reduction is applicable to all taxpayers. Individuals with rental and/or business income will enjoy such reduction whether they elect personal assessment or not. However, the amount of the reduction they would get might be different when assessed under each type of tax or personal assessment. The exact position would need to be evaluated case by case. Therefore, individuals having business and rental income and eligible for personal assessment may make such election in their 2007/08 tax returns. The Department will check if the personal assessment election will reduce the amount of tax payable in each case, and assess each taxpayer in the way to his advantage.

Individuals having salaries income only, but no rental income or business profits, do not need to elect for personal assessment.

Tax bills issued before enactment of the relevant legislation will not reflect the tax reduction. The Inland Revenue Department will reassess them after such enactment. Excess tax paid will be refunded from late July onwards. Taxpayers are not required to apply for such refund or make phone enquiry in this regard

FAQ : One-off reduction in 2007-08 final tax

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