1999-2000 Annual Report, Inland Revenue Department
Profits Tax | Salaries Tax | Property Tax | Personal Assessment | Advance Ruling | Objections | Appeals to the Board of Review | Appeals to the Courts | Business Registration | Stamp Duty | Estate Duty | Betting Duty | Hotel Accommodation Tax | Tax Reserve Certificates
The Department raises revenue through taxes, duties and fees in accordance with the relevant legislation in a cost-effective manner. In 1999-2000, the Earnings and Profits Tax assessed was a decrease of $11.2 billion (14%) against the previous year. On the other hand, duties and fees collected during the year increased by 6.5%.
Profits Tax is levied on individuals, corporations, bodies of persons and partnerships, in respect of assessable profits arising in or derived from Hong Kong. In 1999-2000, the Profits Tax rates for corporations and other non-corporate persons remained unchanged at 16% and 15% respectively.
Reflecting the state of the economy during 1998-99, the number of Profits Tax assessments made in 1999-2000 (which were largely based on profits earned in 1998-99) dropped to 407,400, a decrease of 4.6% as compared with the previous year. Profits Tax of $36.1 billion was assessed during the year which represents a decline of $10.1 billion (21.9%) from that assessed in the previous year (Figure 5).
Of the total tax assessed, property and banking sectors together contributed 48.1% (Figure 6). Further statistics relating to the tax assessed of different business sectors are shown in Schedules 3 and 4.
|Type of tax||1996-97 (Dollars billion)||1997-98 (Dollars billion)||1998-99 (Dollars billion)||1999-2000 (Dollars billion)|
Salaries Tax is charged on all income arising in or derived from Hong Kong from any office or employment or any pension. The total tax payable by an individual is restricted to an amount not exceeding the standard rate of 15% of his total income.
The total number of assessments made in the year dropped by 3.8% as compared with the previous year. This is mainly due to budget concessions, notably the increase in allowances and the introduction of deductions in respect of home loan interest and elderly residential care expenses. The total amount of tax assessed also decreased marginally to $26.5 billion (Figure 7). Analysis of tax assessed and allowances granted in respect of taxpayers at various income levels is provided in Schedules 5 and 6.
|Number (in thousands)||2,287||2,277||2,250||2,165|
|Tax assessed (Dollars billion)||31.5||32.7||26.7||26.5|
Owing to the widening of tax bands and reduction in marginal tax rates, the number of standard rate taxpayers was reduced from 66,565 last year to 10,316 this year, a decrease of 84.5%. They contributed 18.5% of the Salaries Tax assessed (Figure 8).
|Percentage of standard rate taxpayers||5.0%||0.9%|
|Percentage of Salaries Tax assessed||43.9%||18.5%|
Notification Requirements of Employers
Apart from reporting commencement and cessation of employments, employers are required to prepare annual returns on the emoluments of each of their employees. As at 31 March 2000, 181,582 employers filed employer's returns with the Department. To assist new employers in completing the employer's returns, the Department continued to organize free seminars for them. In February 2000, invitation letters were sent to 33,864 new employers for attending 4 seminars held at the Sai Wan Ho Civic Centre in mid-April.
Property Tax is charged on the owner of property at the standard rate of 15% on the net assessable value of the property for each year of assessment. Unincorporated businesses that pay Property Tax in respect of their business premises can have such payments set off against their Profits Tax liabilities. Income arising from properties owned by corporations are subject to Profits Tax at the corporate rate. Statistics on the classification and ownership of properties, based on the record of the Department, are provided in Schedule 7. The number of assessments made during the year increased slightly as compared with the previous year. However, the amount of Property Tax assessed was 6.5% less than that in the previous year (Figure 9).
|Number (in thousands)||436||494||471||474|
|Tax assessed (Dollars billion)||1.80||1.87||1.55||1.45|
An individual may elect for Personal Assessment on his total income. Under Personal Assessment, all income of the taxpayer and his/her spouse is aggregated into a single sum and, after the deduction of all allowances, is assessed at the marginal tax rates. In appropriate circumstances, this would reduce the total tax liability of the individual, e.g. an individual who is chargeable at the standard rate on each separate income source. The reduction in the number of Personal Assessment elections has resulted in a decrease of 7.1% in the number of assessments made, as compared with the previous year. The amount of tax assessed during the year also decreased by 18.3%, partly attributable to the increase in allowances and downward revision in marginal tax rates for the year of assessment 1998-99 (Figure 10).
|Number (in thousands)||384||384||367||341|
|Tax assessed (Dollars billion)||3.68||4.31||4.00||3.27|
The advance ruling service allows a person to apply for a ruling on the way in which a provision of the Inland Revenue Ordinance applies to him or her in relation to a particular arrangement.
A fee is charged for the service on a "cost recovery" basis. Initially, the applicant is required to pay an application fee of $30,000 for a ruling on "Territorial Source Principle" or $10,000 for a ruling on other matters.
The Department will, provided all relevant information is furnished with the application and further consultation with the applicant is unnecessary, endeavour to respond within 6 weeks.
57 advance ruling applications were processed during 1999-2000 (Figure 11). Most of the applications were for rulings on Profits Tax matters.
|Number of Applications||1998-99||1999-2000|
|Awaiting decision at the beginning of the year||0||5|
|Add: Applications received during the year||51||69|
|Less: Disposed of － Ruling made||40||44|
|Less: Disposed of － Application withdrawn||3||7|
|Less: Disposed of － Ruling declined||3||6|
|Awaiting decision at the end of the year||5||17|
A taxpayer who is aggrieved by an assessment made under the Inland Revenue Ordinance may lodge an objection to the Commissioner. A significant proportion of the objections received each year arises from estimated assessments issued to taxpayers who fail to lodge returns in time. An objection of this nature must be supported by a completed return and, where applicable, by supporting accounts. Most of these objections are settled promptly by reference to the returns submitted. Most of the other types of objections are also settled by agreement between the taxpayer and the assessor. Only a small percentage of objections are ultimately referred to the Commissioner for determination. During the year, the Department processed over 74,000 objections (Figure 12).
|Number of Objections||1997-98||1998-99|
|Awaiting settlement at the beginning of the year||21,339||21,412|
|Add: Received during the year||70,950||73,380|
|Less: Disposed of － Settled or withdrawn||70,001||73,091|
|Less: Disposed of － Assessment confirmed||448||452|
|Less: Disposed of － Assessment reduced||241||299|
|Less: Disposed of － Assessment increased||176||163|
|Less: Disposed of － Assessment annulled||11||25|
|Awaiting settlement at the end of the year||21,412||20,762|
Appeals to the Board of Review
A taxpayer who is dissatisfied with the Commissioner's determination of his objection may appeal to the Board of Review (Inland Revenue) to have the Commissioner's determination reviewed. As at 31 March 2000, the Board consisted of a chairman and 10 deputy chairmen who have legal training and experience as well as 115 other members. During the year, the Board processed 253 appeals (Figure 13).
|Appeals to the Board of Review||Number|
|Awaiting hearing or decision as at 1 April 1999||161|
|Add: Lodged during the year||249|
|Less: Disposed of －Withdrawn||69|
|Less: Disposed of －Assessment confirmed||105|
|Less: Disposed of －Assessment reduced in full||18|
|Less: Disposed of －Assessment reduced in part||40|
|Less: Disposed of －Assessment increased||12|
|Less: Disposed of －Assessment annulled||5|
|Less: Disposed of －Others||4|
|Total number of cases disposed||253|
|Awaiting hearing or decision as at 31 March 2000||157|
Appeals to the Courts
The appellant or the Commissioner may appeal to the Courts against the decision of the Board of Review. During 1999-2000, the Court of First Instance ruled on 2 appeal cases. The issues considered include the taxability of profits on sale of landed properties and the issue of notices for penal assessment.
The Court of Appeal handed down 3 decisions. Decision was given in favour of the Commissioner in a case involving a change of accounting date. 2 cases were decided in favour of the taxpayers. They were concerned with the treatment of interest expenses capitalised as cost of trading stock. The Commissioner has appealed to the Court of Final Appeal against the latter decisions.
The Court of Final Appeal decided in favour of the taxpayer in a case which was concerned with the use of trademark in Hong Kong.
Figure 14 sets out statistics concerning appeals to the Courts for 1999-2000.
|Appeals to the Courts||Court of First Instance||Court of Appeal||Court of Final Appeal||Total|
|Awaiting hearing or decision as at 1 April 1999||8||3||1||12|
|Add: Lodged during the year||9||0||2||11|
|Less: Disposed of － Decided||2||3||1||6|
|Less: Disposed of － Discontinued||7||0||0||7|
|Awaiting hearing or decision as at 31 March 2000||8||0||2||10|
The Department maintains an efficient business registration system. Every person carrying on business in Hong Kong must register his/her business with the Business Registration Office and pay the annual fee to renew the business registration certificate.
The annual registration fee and levy for the Protection of Wages on Insolvency Fund payable by a registered business in 1999-2000 was $2,000 and $250 respectively. The level of fee and levy has remained unchanged consecutively for 6 years.
As a measure to lower the operating cost of doing business, starting from this year, registered businesses may opt to renew their registration every 3 years. The registration fee and levy payable for a 3-year certificate was $5,200 and $750 respectively. Up to 31 March 2000, 4,892 businesses have taken up the option.
As the economy started to improve, the number of new and re-opened registrations in the year increased by 12,113, as compared with the previous year. Moreover, the number of cancelled registrations was reduced by 7,624. The total number of active registrations recorded a slight growth for the year (Figure 15 and Schedule 8). There was a corresponding increase in the number of certificates issued which has led to a marginal increase of $0.5 million in the amount of business registration fees collected (Figure 16).
|Number of Active Business Registration||31.3.1999||31.3.2000|
|Certificates issued and Fees collected||1998-99||1999-2000||Percentage increased|
|Number of certificates issued (Main and Branch)||685,841||687,150||0.20%|
|Fees (inclusive of penalties) (Dollars million)||1,275.7||1,276.2||0.04%|
Small businesses with turnover below the specified limits may apply for exemption from payment of fee and levy. The number of exemptions granted during the year was 7,704. This represents an increase of 40% from that granted in the previous year.
Where an application for exemption is not allowed, the business operator may appeal to the Administrative Appeals Board. The Board had not, however, received any appeal during the year (Figure 17).
|Awaiting hearing as at 1 April 1999||1|
|Add : Lodged during the year||0|
|Less : Disposed of － Appeal dismissed||0|
|Less : Disposed of － Appeal allowed||1|
|Awaiting hearing as at 31 March 2000||0|
Stamp Duty is collected from property transactions, stock transfers and leases (Figure 18). The property market remained weak during 1999-2000, with property prices and the number of transactions falling slightly, as compared with the corresponding figures for 1998-99. Other factors affecting the revenue collected were, on the positive side, the increase in stamp duty rates on property transactions which came into effect from 1 April 1999, and on the negative side, the introduction of the scheme deferring payments of stamp duty on agreements for sale until the assignment. The combined effect of the economic and fiscal factors resulted in a decrease of 22.4% in the duty collected from property transactions.
The stock market was however very active, particularly in early 2000. As a result, there was a substantial increase of 93.7% in stamp duty collection from share transactions as compared with the previous year.
Overall, stamp duty collected during the year increased by 18.9%, as compared with the previous year (Figure 19 and Schedule 9). The number of documents stamped declined slightly, by some 2.6% (Schedule 10).
|Compositions||1998-99 (Dollars million)||1999-2000 (Dollars million)||Percentage increased or decreased|
|Immovable Properties||6,336||4,917||- 22.4%|
|Leases etc.||265||250||- 5.7%|
The Estate Duty Office is responsible for the assessment and collection of estate duty which is charged on that part of the deceased persons' estates situated in Hong Kong.
In the year 1999-2000, the rates of duty and the tax bands remained the same as those of the previous year. The threshold for levying duty is $7.5 million. The duty rates range from 5% to 15% depending on the value of the estate.
Figures 20 and 21 show the composition of estates and cases processed for the past two years.
|Composition of Estates||1998-99||1999-2000|
|Estate Duty cases||1998-99||1999-2000|
|Cases finalized － Dutiable||326||354|
|Cases finalized － Exempt||13,506||13,889|
|Total cases finalized||13,832||14,243|
Estate Duty of $1,272 million was collected during the year (Schedule 11), an increase of $35 million (2.8%) over that of the previous year.
As Estate Duty is payable on delivery of an estate duty affidavit or account (or within 6 months from the date of the deceased’s death, whichever is the earlier), $894 million was received during the year in advance of the issue of formal assessments (Schedule 12).
In respect of an appeal case lodged by the Commissioner in the previous year, the Court of Appeal handed down a decision in favour of the Commissioner. The case concerns whether certain property disposed of by the deceased within 3 years prior to his death is liable to estate duty. The dutypayer has lodged an appeal with the Court of Final Appeal.
Betting Duty is charged on bets made on totalisators at race meetings conducted by the Hong Kong Jockey Club and on the proceeds of lotteries conducted by the Hong Kong Lotteries Board.
The rates of duty for 1999-2000 were shown at Figure 22.
|Type of bets||Details of bets||Rates|
|Standard Bets||win, place, double, quinella and quinella place||12%|
six up, treble, tierce, trio, double trio and triple trio
(Note: Rate increased from 18% to 19% effective from 1.9.1999 and trio was introduced on 5 September 1999)
During the year, there was slight decline in both racing attendances and bets declined (Schedule 13) resulting in a drop of 3.7% in duty collected from horse racing. Although the lotteries duty was increased during the year, the betting duty collected in 1999-2000 was 2.4% less than that of the previous year (Figure 23).
|Betting Duty collections||1998-99 (Dollars million)||1999-2000 (Dollars million)||Percentage increased or decreased|
|Horse Racing||11,160.4||10,748.1||- 3.7%|
Hotel Accommodation Tax
Hotel Accommodation Tax is imposed on hotel and guest house accommodation at the rate of 3% of the accommodation charges paid by guests and is collected quarterly in arrears.
During the year ended 31 March 2000, there was an increase in the number of hotels and boarding houses operating in Hong Kong resulting in an increase of 7% in the number of taxable rooms (Figure 24).
The tax collected by this Department during 1999-2000 was 17% less than that collected in the previous year (Figure 25). This was mainly attributable to the reduction in room charges (Schedule 14) despite a general rise in room occupancy rate of 4% (Figure 26).
|Number||1998-99||1999-2000||Percentage increased or decreased|
|Hotels and Boarding Houses||156||168||+ 7.7%|
|Taxable Rooms||33,952||36,339||+ 7.0%|
|Exempted Rooms||5,512||5,475||- 0.7%|
|Fiscal Year||Collections (Dollars million)|
|Room Days||9,004,688||9,779,071||+ 8.6%|
|Occupancy Rate||75.4%||79.4%||+ 4.0%|
Tax Reserve Certificates
There are two sets of circumstances under which Tax Reserve Certificates are purchased. The first one applies to taxpayers who wish to save for the payment of their future tax liabilities. Two service schemes are offered to these taxpayers: the 'Electronic Tax Reserve Certificates Scheme' for all taxpayers and the 'Save-As-You-Earn' (SAYE) Scheme for civil servants and civil service pensioners. Under the Electronic Tax Reserve Certificates Scheme, certificates can be purchased by various electronic payment means: bank autopay, phone payment, Internet payment and bank ATM transfer. In the "SAYE" Scheme, civil servants and civil service pensioners can authorize a deduction from their salaries/pensions. Interest is payable on the certificates based on the interest rate fixed at the time of purchase, for a maximum period of 36 months from the date of purchase. However, no interest will be payable if the certificate is redeemed in cash or otherwise for settlement of the holder's tax liabilities.
There was a continuous growth in the number of certificates sold in recent year (Schedule 15). However, the amount of certificates sold dropped in 1999-2000 (Figure 27). The higher amount achieved in the previous year was a result of the relatively high interest rate of Tax Reserve Certificates as compared with that generally offered by banks in December 1998. The mechanism for calculating Tax Reserve Certificates interest rate was revised in mid-December 1998. Thereafter, the interest rates of Tax Reserve Certificates have always been very close to market rates.
The second set of circumstances applies to taxpayers who object to tax assessments and are required to purchase Tax Reserve Certificates in respect of the tax in dispute. Such certificates are to be used to settle any tax found payable upon the finalization of the objection or appeal. Interest is only paid on the amount, if any, subsequently required to be repaid to the taxpayer. Effective from 1 September 1999, the interest on this type of certificates is computed at floating rates in force over the tenure of the certificate.
|Numbetr||Value (Dollars million)||Number||Value (Dollars million)|
|Certificates relating to Objections and Appeals||1,030||2,848.8||1,048||1,901.1|
|Certificates other than Objections and Appeals||75,849||1,434.6||77,695||471.7|
Vision, Mission and Values | Commissioner's Overview
| Revenue | Assessing Functions |
Collection | Investigation & Field Audit |
Taxpayer Services | Information
Technology | Human Resources |
Legislative Amendments | Environment Report |
Miscellaneous | Schedules
Home Page | Publications and Forms | Annual Report | 中文版年報 (Chinese Version)
(Last updated/reviewed : November 24, 2004))