Tax Information : Individual: The 2007-08 Budget

In the 2007-08 Budget delivered on 28 February 2007, the Financial Secretary proposes a package of tax relief measures:

(1)

A waiving of 50% of the 2006-07 salaries tax or tax charged under personal assessment, subject to a ceiling of $15,000 per assessment.

(2)

From 2007-08 onwards, the marginal rates and bands will be reverted back to the 2002-03 levels, i.e. the band width will be increased from $30,000 to $35,000 and the two highest marginal tax rates will be reduced from 13% and 19% to 12% and 17% respectively.

(3)

From 2007-08 onwards, the child allowance will be increased from $40,000 to $50,000 for each child with the introduction of an additional allowance of $50,000 for each child born during the year. In other words, the total child allowance for a new-born child will be $100,000 in the year of birth.

(4)

From 2007-08 onwards, the deduction ceiling of self-education expenses will be enhanced from $40,000 to $60,000.

Please see examples showing the tax savings resulted from these concessions.

The proposal under item 1 is applicable to salaries tax charged or tax charged under personal assessment in 2006-07. 50% of the 2006-07 salaries tax or tax under personal assessment would be waived, subject to the maximum of $15,000. In other words, if the 2006-07 final tax (before tax waiving) is below $30,000, taxpayers will be paying only half of their 2006-07 final tax. If the final tax is $30,000 or above, they will pay $15,000 less. Every taxpayer will on average save $6,000. For details of the amount of tax savings enjoyed by taxpayers by income group after implementation of the proposed one-off waiving of salaries tax and tax under personal assessment, please see Table 1.

Unlike the rebate exercises in 1999 and 2003 in which taxpayers received immediate refunds of tax previously paid, the tax waiving currently proposed will reduce the tax payable in the coming year. The waiving of the tax will only be reflected in the tax bills due in January 2008 and the taxpayer will find the amount payable substantially reduced (see Examples). Taxpayers will, as usual, file their individual tax returns for 2006-07 in the coming May. Upon passage of the relevant legislation, the Inland Revenue Department will effect the waiving in the final assessments for 2006-07. Salaries tax bills with the waiving will be issued from late July onwards. The tax payable will normally fall due in January 2008. For tax bills issued before legislative amendments, the Inland Revenue Department will reassess them after the enactment of the legislation. The excess tax paid will be refunded to taxpayers from late July onwards. There is no need for taxpayers to make phone enquiry.

As the proposed waiving will only be applicable to the 2006-07 final tax, taxpayers are still required to pay on time the 2006-07 provisional tax, including the second instalment falling due from April 2007. The provisional tax paid will, in accordance with the Inland Revenue Ordinance, be applied for payment of the 2006-07 final tax and the 2007-08 provisional tax. Excess balance, if any, will be refunded.

If an individual with rental or business income is eligible to elect personal assessment, he can also enjoy the tax waiving by electing personal assessment. He should complete Part 6 of the Tax Return - Individuals for 2006-07 issued to him in May 2007 to elect for personal assessment. Where personal assessment is not to the individual's advantage, the Inland Revenue Department will not assess him under personal assessment, to ensure that the individual will not pay more tax than he should.

Legislative amendments are also required for implementing the proposals mentioned in items (2) to (4) above. After the enactment of the relevant legislation, the Inland Revenue Department will automatically apply the new marginal rates and bands and the new level of child allowance in computing the 2007-08 provisional salaries tax. There is no need for taxpayers to make any application. If the child of a taxpayer is born on or after 1 April 2007, he can complete Part 8.2 of his Tax Return - Individuals for 2006-07 by providing details of this new born child. The Department will grant child allowance of $100,000 for that child when computing his 2007-08 provisional tax (see Example 3). For child born after the completion of the tax return, a taxpayer can apply for holding over of provisional tax after receipt of the notice of assessment.

Estimated tax saving of taxpayers by income group after implementation of the proposed salaries tax measures, please see Table 2 and Table 3.