(Source : Government Information Centre)
LCQ17: Hold over of provisional salaries tax
Following is a question by the Hon Chan Kwok-keung and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (October 23):
It has been reported that although the salaries of civil servants have been reduced as from 1 October this year, the Inland Revenue Department (IRD) points out that according to the Inland Revenue Ordinance (Cap. 112), employees who have their salaries reduced have to pay their provisional salaries tax for the current year of assessment by reference to the net chargeable amount and rates specified for the preceding year of assessment; thus, the amount of provisional salaries tax payable by civil servants who have their salaries reduced cannot be lowered. Moreover, a person is qualified for a holding over of payment of provisional salaries tax if the net chargeable income during the year of assessment of the person assessed to provisional salaries tax is, or is likely to be, less than 90% of the net chargeable income for the year preceding the year of assessment. As the rate of salary reduction for civil servants on this occasion is less than 10%, civil servants are not qualified for the said holdover. In this connection, will the Government inform this Council:
(a) whether the authorities are empowered by the existing legislation to exercise discretion in dealing with applications for reduction in the amount of provisional salaries tax and for holding over of payment of provisional salaries tax; if so, of the details; and
(b) whether it will review the existing legislation to enable more employees who have their salaries reduced to be qualified for holding over of payment of their provisional salaries tax?
(a) Section 63C of the Inland Revenue Ordinance (Cap. 112) (the Ordinance) provides that provisional salaries tax for a taxpayer for a year of assessment should be assessed by reference to the taxpayer's income for the preceding year of assessment. Section 63E of the IRO stipulates that at any time 28 days before the provisional salaries tax is due, taxpayers may lodge an application for holding over all or part of the provisional salaries tax on any of following grounds:
(i) The taxpayer has become entitled to an allowance, which was not given in the notice for payment of provisional tax.
(ii) The net chargeable income (income less allowances and deductions) of the taxpayer for the year of assessment for which provisional tax was charged is, or is likely to be, less than 90% of the net chargeable income for the preceding year or of the estimated sum in respect of which the person is liable to pay provisional tax (the '90% rule').
(iii) The taxpayer has ceased, or will before the end of the year of assessment for which provisional tax was charged cease, to derive income chargeable to salaries tax.
(iv) The taxpayer has objected to his/her salaries tax assessment for the year preceding the year of assessment for which provisional tax was charged.
The Commissioner of Inland Revenue is obliged to assess hold over applications in accordance with the above rules and conditions.
This year's civil service pay reduction which took effect from 1.10.2002 will only affect civil servants' income in the latter half of the current year of assessment (i.e. 2002/03). As the magnitude of adjustment ranges from 1.58% to 4.42%, for most civil servant taxpayers their net chargeable incomes for 2002/03 are unlikely to be less than 90% of their net chargeable incomes for 2001/02. As such, in most of the cases, civil servant taxpayers do not meet the '90% rule' condition for applying for hold over. In certain cases where the tax allowances and deductions claimed by civil servant taxpayers constitute a large ratio to their assessable incomes, their adjusted net chargeable incomes after the pay cut may fall by more than 10%. In these latter cases, the taxpayers will be entitled to apply for hold over of the payment of part of their provisional salaries tax.
(b) The '90% rule' relating to hold over of provisional tax has been in force for many years. It has proved to be effective, having properly struck a balance between relieving the immediate tax burden of taxpayers and avoiding excessive administrative pressure on the Inland Revenue Department. We consider that this rule should be maintained.
End/Wednesday, October 23, 2002