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LCQ6: Abolition of estate duty


Following is a question by the Hon Jeffrey Lam and an oral reply by the Financial Secretary, Mr Henry Tang, in the Legislative Council today (April 25):


Hong Kong has abolished estate duty since February last year, in order to attract more foreign and local investment, promote the development of asset management business and boost the financial market. In this connection, will the Government inform this Council:

(a) of the revenue from estate duty in the 2006-2007 financial year, the difference between such revenue and its estimated figure, as well as the reasons for the difference;

(b) whether it has calculated the new investments from abroad and by local investors so far brought about by the abolition of estate duty, especially those in the asset management business; and

(c) whether it has formulated other measures to promote the development of asset management business for more business opportunities and employment?


Madam President,

(a) The original estimate for estate duty collection in 2006-07 was $160 million and the provisional actual collection is $778 million. That the estate duty collection in 2006-07 is more than the original estimate is mainly because of the receipt of several new estate cases during the year involving substantial amounts, the advancement of duty payment by some estate cases, and the additional duties paid by some large estates as a result of under-estimation of assessable value when filing estate duty returns.

Some estates mainly consist of landed properties but lack adequate cash and bank balances to settle the estate duty payable. It is estimated that some personal representatives of such estates may have taken advantage of the recent boom in the property market to sell the properties in the estates, and advanced the duty payment. Consequently, the estate duty collection in 2006-07 is more than the original estimate.

(b) As regards the amount of investments brought to Hong Kong by the abolition of estate duty, especially those in asset management business, investment decisions are often influenced by many factors and it is difficult to give an accurate assessment on the additional amount of investment induced by the abolition of estate duty alone. Nevertheless, the industry generally agrees that the abolition of estate duty has generated a positive impact and is conducive to the long-term development of our asset management business and the financial sector as a whole. Our asset management business and investment environment have also become even more attractive and competitive following the abolition of the tax. We also understand from the banking trade that many private banking clients have relocated their overseas assets back to Hong Kong after the abolition.

With the abolition of estate duty and the support of government policies, coupled with the continued promising economic outlook and improving business environment, Hong Kong has become increasingly attractive to local, Mainland and overseas investors.

On asset management business, there had been a growth of 25% in Hong Kong's combined fund management business, from HK$3,618 billion in 2004 to HK$4,526 billion in 2005. Moreover, 79% of the assets managed in Hong Kong were invested in Asia, including Hong Kong and the Mainland, representing an increase of 28% compared with the figure in the previous year. Although figures for 2006, i.e. the year of abolition of estate duty, are yet to be released, we can make reference to other figures to assess the recent performance of our financial services industry.

On authorised funds and authorised hedge funds, the gross sales of mutual funds in Hong Kong amounted to US$24.3 billion in 2006, representing a substantial increase of 72% from US$14.1 billion in 2005. In 2006, the Security and Futures Commission (SFC) authorized more than 200 new unit trusts and mutual funds. The total asset under management of all authorized funds increased from US$66.7 billion in end-2005 to US$91 billion in end-2006, representing a growth of over 36%. The business of authorized hedge funds also continues to flourish. The net asset size of the 14 hedge funds authorized by the SFC also increased further to US$1.66 billion, up notably by 60% from US$1.04 billion in end-2005.

On bank deposits, while the average growth rate of bank deposits in Hong Kong was only 3% in the past 5 years (from 2001 to 2005), bank deposits increased by 17% in 2006 to $4,762.2 billion. Furthermore, Hong Kong's direct foreign investments in 2006 amounted to HK$333.2 billion, up by over 27% from 2005. The total assets of the investment portfolios of private bank clients of banks authorized by SFC to conduct asset management business also increased by 31% in 2006, compared with 16% in 2004 and in 2005.

While investment decisions are influenced by many factors, the above information helps to show that following the abolition of estate duty, there are significant development in both Hong Kong's asset management and the financial services industry as a whole.

(c) To further promote the development of asset management business in Hong Kong, the Government and the SFC will continue to adopt multi-pronged measures, including:

(1) Facilitation of Market Development and Innovation of Investment Products

To further promote the development of our asset management business, we must provide a business-friendly environment for fund houses to operate their businesses in Hong Kong and provide more choices of investment products for investors. The SFC will continue to liaise closely with the fund management industry, review its regulatory policies from time to time, and streamline the current approval procedures as far as possible to facilitate the development of new investment products.

(2) Tax Measures

Apart from the abolition of estate duty, we have exempted offshore funds from profits tax since last year. This measure will attract new offshore funds to come here and encourage existing funds to continue to invest in Hong Kong, which will lead to an increase in market liquidity as well as employment opportunities in the financial services and related sectors. Downstream service sectors such as brokers, accountants, banks and lawyers will also benefit.

(3) Promoting the Industry

Over the past year, the Administration, in conjunction with the financial services sector, visited a number of places to promote Hong Kong's asset management business and our strengths as an international financial centre. We will continue to promote Hong Kong as a platform for global investment and our diversified financial services to various overseas markets and Mainland provinces and cities.

(4) Human Resources Development

Adequate and high quality human resources are crucial to the development of our asset management industry which requires experts in different fields, e.g. fund managers, economic analysts, lawyers and accountants. In this connection, the Government has set up the Advisory Committee on Human Resources Development in the Financial Services Sector comprising members from industry organizations, professional bodies, regulatory bodies, training institutions and the relevant policy bureaux. We will continue to enhance talent training and planning in order to maintain our competitiveness as an asset management centre.

Looking ahead, with the rapid development of Mainland's economy, the Government will continue to develop Hong Kong as our country's international financial centre, establish a complementary, cooperative and interactive relationship with the mainland markets, promote our strengths as an asset management centre, and seize new business opportunities in the Mainland for our asset management industry.

Early this month, the SFC signed a Memorandum of Understanding with the China Banking Regulatory Commission for regulatory cooperation with respect to Mainland commercial banks conducting overseas wealth management business on behalf of their clients (i.e. QDII). The SFC and the Hong Kong Monetary Authority will continue to maintain close co-operation and communication with the relevant authorities in the Mainland, and capitalize on Hong Kong's strengths in enhancing our role as an investment platform and bridge for the flow of investment from the Mainland to the international market. Through the Closer Economic Partnership Arrangement (CEPA), we will also continue to help the industry explore the opportunities of the Mainland market with a view to facilitating the further development of our asset management industry.

Ends/Wednesday, April 25, 2007
Issued at HKT 13:35