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| March 2000 Government coffers Tax system under review By Crystal Tang RELATED ARTICLE: Article from the same section: Recent proposals calling for a sales tax have opened debates about a broader overhaul of the Hong Kong system of taxation. Recently, many people have said Hong Kong needs to widen its tax base to achieve stable and healthy sources of revenue. Hence, the implementation time and the kinds of new taxes have come under discussion. However, Mr. Lee Kang Bor, the president of The Taxation Institute of Hong Kong, said it would be better to review the present tax system before any new tax was imposed. He is satisfied with the present system. “The current system can successfully finance the government and redistribute the resources of the society.” He said the Hong Kong tax system is famous for its simplicity and its relative low profits tax rate. “The profit tax rate is not high, and therefore, it is efficient to attract investments from overseas,” said Mr. Lee. Nowadays, the tax rate for unincorporated business is 15 percent, and for corporations, 16 percent. Mr. Lee said although some people suggest that the little difference should help big corporations monopolize the market, he did not see a problem. Said he, “There is no anti-trust law in Hong Kong and monopolizing the market is not illegal. “Also, I think the cartel between big businesses seems to be the factor involved in this matter rather than the tax system.” Dr. Francis Lui Ting Ming, professor of the Department of Economics of the Hong Kong University of Science and Technology, also said he is satisfied with the present profit tax system. He said the Hong Kong economy benefits from the low profits tax rate. “Nowadays the mobility of capital is so easy. A higher profit tax rate will have disincentive effect on investors, which is not good,” said he. In addition, Dr. Lui said the advantage of the present tax system is its simplicity. Said he: “First, it is easy and simple for people to fill in the tax return. “When I was in America, I had to use two days to fill in a tax return. A simple tax system can increase the productivity as time has been saved. “Second, the tax system in Hong Kong is clearly stated for every item. It can effectively avoid tax evasion.” However, Dr. Lui still has reservations about the present tax system, especially the salaries tax. In the present system, the salaries tax is determined on a sliding scale according to a taxpayer’s income after deductions of allowances. However, no one needs to pay more than 15 percent of the total income. In other words, the standard tax rate of the salary tax is up to a maximum of 15 percent. Said Dr. Lui: “Nowadays in Hong Kong, not many people have to pay tax. There are just about 50 percent of people who have to pay tax. “And the people who need not pay tax are usually the poor. Most of them are living in public housing, which is a kind of subsidy from the government. “Also education and medical treatment are heavily subsidized in Hong Kong. Consequently, the poor are nearly the net recipients.” Moreover, Dr. Lui said that the present salaries tax system is not fair at all as nearly all the burden has shifted to the middle class. Said he: “Those people, who are in the top of the tax bracket, constitute nearly 65 percent of total taxes received. And most of them belong to the middle class. “The rich in Hong Kong do not pay many taxes. They earn money from shares of their companies rather than from their salaries. “As a result, both the rich and the poor do not have to pay a lot of taxes. And the burden merely goes to the middle class.” Also, Dr. Lui pointed out that in most countries, taxation is always regarded as the redistribution of resources. However, he said the tax system in Hong Kong failed to perform this function. Said he: “Many people believe that salaries tax should get money from the rich to finance the poor. I think our tax system is not getting money from the rich. “As I said, the middle class pays the greatest amount of taxes. They are the group that the money is being taken from. Besides salaries taxes, Dr. Lui also said some tax rates are just too high. He took the Ramsey tax, the gains from the confiscation of lands and the selling of the rights of using lands, as an example. He said that the Ramsey tax in Hong Kong hinders redistribution of resources in society, which is not healthy. He said that the government relies on the large amount of revenue from land transactions to make people pay less tax. Dr. Lui believed this would not affect the consumption pattern of people. Said he: “Because of the Ramsey tax, people can have some more money to spend. Thus, people’s consumption pattern would be less likely to change. “And this makes the resources of the society will be more difficult to redistribute. However, Dr. Lui said although the Ramsey tax is a kind of shortcoming of the present tax system, the tax is still important to Hong Kong as government revenue depends so much on the receipts from land transactions. |
(Source: Inland Revenue Department Annual Report)
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