(Source : Government Information Centre)
LCQ24: Tax deductions in respect of contributions to Mandatory Provident Fund Scheme or Recognized Occupational Retirement Scheme
Following is a question by the Hon Ho Chun-yan and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (January 26):
Under the Inland Revenue Ordinance (Cap. 112), an employee may claim a deduction from his assessable income in respect of his contributions to a Mandatory Provident Fund Scheme (MPFS) or Recognized Occupational Retirement Scheme (RORS), and the maximum amount deductible is equivalent to the mandatory contribution cap. However, an employee who is unaware of the above provisions and hence has not claimed a deduction may have to pay more tax. According to the Annual Report of the Inland Revenue Department (IRD), there were about 1 205 000 taxpayers in the year of assessment 2001-02. Nevertheless, in reply to a Member's question at the Legislative Council meeting on 3 November last year, the Government advised that there were only about 822 000 claims for deductions in respect of such contributions in that year of assessment. In this connection, will the Government inform this Council:
(a) of the reasons for the number of taxpayers exceeding the number of people claiming deductions of such contributions by more than 380 000 in the above year of assessment; and
(b) whether it will consider requiring employers to report the amounts of employees' contributions to a MPFS or RORS on the Employer's Return of Remuneration and Pensions, so as to remind their employees that they can claim deductions in respect of such contributions and to facilitate verification of the amounts of such contributions by IRD; if not, the reasons for that?
(a) Under the Inland Revenue Ordinance (Cap. 112)(IRO), a taxpayer may claim a deduction from his assessable income in respect of his contributions to a Mandatory Provident Fund Scheme (MPFS) or Recognized Occupational Retirement Scheme (RORS). However, not all salaries taxpayers (which include employed persons and pensioners, totalling 1 205 000) have incurred MPFS or RORS related expenses and are eligible for such a deduction. Some main categories of taxpayers who do not need to make any contribution to MPFS or RORS and thus are not eligible for deductions are as follows:
(i) Some 149 000 taxpayers are civil servants. A great majority of these persons are covered by the Civil Service Pension System and thus do not need to make any contributions to MPFS or RORS.
(ii) Some 19 000 taxpayers are ex-civil servants receiving pensions (Note 1). These taxpayers do not need to contribute to any recognized retirement schemes.
(iii) Some of the 480 000 (Note 2) employees who have joined an MPF-exempted RORS may be liable to pay salaries tax but may not need to make any contribution to the schemes because some of the schemes are only funded by employers' contributions. But we do not have the breakdown on how many actually pay salaries tax.
(iv) Among the 45 000 (Note 3) expatriates who do not have the right of abode in Hong Kong and are covered by overseas retirement schemes or who work in Hong Kong for not more than 13 months and therefore do not need to make contributions to MPFS or RORS, some may be liable to tax. However, we do not have statistics on how many actually pay salaries tax.
The foregoing helps to explain the discrepancy between the number of taxpayers (1 205 000) and the number of claimants for deduction (822 000). We believe that the number of taxpayers eligible for deduction but who have not claimed this should not be significant. In cases where a taxpayer fails to make a deduction claim for some reason, he may provide evidence and make a supplementary application within six years of the year of assessment concerned, if his failure is due to an error or omission.
(b) Under the IRO, it is the right and responsibility of taxpayers to claim for deductions. It is the Administration's policy to encourage taxpayers to understand their rights under the tax laws and make claims for deduction in their tax returns. IRD makes use of various means to publicise such rights to taxpayers. Apart from providing a specific part (part 4.3) in the tax return to allow the taxpayer to make an application for the deduction of retirement contributions, and elaborate explanations in the Guide to Tax Return sent with the tax returns, IRD also provides taxpayers, through the pamphlets issued and the internet, detailed explanations of matters relating to contributions to recognised retirement schemes.
In addition, employers are required under the MPF legislation to issue to their employees a monthly record of MPF contribution, specifying the amount of relevant income paid to the employees, the amount of mandatory and voluntary contribution made by the employers and the amount of mandatory and voluntary contribution deducted in respect of the employees. This monthly record provides the employee with clear information to assist him in calculating the amount of his contribution for the purpose of making a claim for tax deduction.
Under the IRO, application for a deduction has to be made by the taxpayer himself. The process of making a deduction claim by the taxpayer cannot be dispensed with even if it is required that the amount of the employee's contribution to MPF is reported by the employer in the Employers' Return.
In view of the above, we do not consider it necessary to require employers to report the amounts of employees' contributions to a MPFS or RORS on the Employer's Return on top of the present arrangements.
Note 1: Retired persons receiving a pension are liable to salaries tax under section 8(1)(b) of the IRO.
Note 2: Estimation provided by the Mandatory Provident Fund Schemes Authority (MPFA) based on figures reported by Employers of MPF-exempted ORSO Registered Schemes.
Note 3: Estimation provided by MPFA based on figures provided by the Immigration Department. Domestic employees are excluded.
Ends/Wednesday, January 26, 2005