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(Source : Government Information Centre)

LCQ10: Tax assessment


Following is a question by the Hon Law Chi-kwong and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (February 26):


Will the Government inform this Council whether it will consider amending the Inland Revenue Ordinance (Cap. 112) to allow married couples who have elected to be separately assessed to apply individually for calculating their payable taxes based on "personal assessment", so as to enjoy the tax concessions concerned; if not, of the reasons for that?



The direct income based taxation system in Hong Kong consists of three individual taxes, Property Tax, Salaries Tax and Profits Tax, each of which is separately assessed independently of the others. Only Salaries Tax carries an entitlement to deduct personal allowances and to be charged at progressive rates of tax; the other taxes are charged at a fixed single rate of tax with no deductions for personal allowances.

There are a number of circumstances where assessment under a total income computation would produce a smaller overall tax liability than the combined separate taxes. For this reason, Personal Assessment was introduced, as a tax relief measure, to provide an opportunity for an individual who also has income from Profits Tax and/or Property Tax to elect for total income assessment involving the personal allowances and progressive tax rates that otherwise apply only to Salaries Tax.

Under the Inland Revenue Ordinance, there are certain conditions for electing Personal Assessment. These conditions include the taxpayer electing Personal Assessment must be aged 18 years or more, he must be a permanent or temporary resident of Hong Kong, and, in case of married couples not living apart, both must enter into the election if they both have income to be included and both are eligible to elect, etc.

Separate assessments for married couples are not allowed under Personal Assessment because there is scope for abuse. For example, the couple may transfer income and assets between them in order to benefit from the personal allowances and deductions and the progressive rates available under Personal Assessment. In the case where separate assessments for married couples under salaries tax are allowed, there are specific provisions in the Inland Revenue Ordinance to govern what and how personal allowances can be claimed by each spouse. Besides, income splitting and/or transfer are less likely in employment cases.

For the foregoing reasons therefore Government does not intend to amend the Inland Revenue Ordinance as proposed.

End/Wednesday, February 26, 2003