Tax reforms prove incentive
TAX is important to many investors in the fixed-interest market and the Hong Kong Government and the Hong Kong Monetary Authority have moved to correct some anomalies and enhance the attractions of some issues.
Among the early reforms was the abolition of withholding tax on bank deposits in the late 1980s.
In 1991, the government agreed to make the Hong Kong-dollar paper issued by four supranational issuers free from profits tax.
Legislation to affect this change was sponsored by the Monetary Authority.
The four were the Asian Development Bank (ADB), the International Finance Corporation (IFC), the World Bank and the European Investment Bank.
Laws were aimed at lifting the profile of the Hong Kong-dollar debt market and attracting more quality borrowers.
First tax-exempt issues were made in 1992 by the ADB and IFC.
Tax-free status was extended to three more supranationals last year: the European Bank of Reconstruction and Development; Nordic Investment Bank; and the Inter American Development Bank.
Critics of the supra-national tax exemption have charged that it was unfair to local issuers, but the Monetary Authority has pointed out that many fund managers, which are already exempt from profits tax, tend to seek higher-yielding paper.
The Asian Development Bank (ADB) enjoys tax-free status in other countries belonging to the organisation.
The Capital Markets' Association preferred to extend the tax-free income status to the paper issued by other bodies, starting with the Mass Transit Railway Corporation and the Airport Authority that already get some special treatment in other areas.
But association chairman Andrew Ferguson said critics of special tax status given to ADB and its sister supranationals were off the mark.
''A number of people have said: 'Why should we have offshore organisations like the ADB coming in and taking a tax benefit out of Hong Kong?'.
''But they have kick-started this market in a way that would not have happened otherwise,'' Mr Ferguson said.