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Mark Sharp

AN 82 per cent increase in revenue from property and stock transactions fuelled a higher than expected 18 per cent growth in overall collected tax revenue for 1996-97, the Inland Revenue Department's annual report has revealed.

 Tax experts said the record revenue collected in the financial year to March 31 would bolster calls for the Government to cut the profits tax rate in the 1998-99 Budget in order to strengthen Hong Kong's competitive edge and stimulate economic growth.

 Revenue collected by the tax department in the past financial year amounted to $120.02 billion, compared with $102.76 billion in the previous year.

 Stamp duty on stock and property transactions totalled $20.46 billion.

 Profits tax, at $50.06 billion, was the largest single portion of the total on the lowest rise of 7.2 per cent.

 Salaries tax amounted to $28.7 billion, a rise of 9.3 per cent, while betting duty and other miscellaneous items contributed the remainder.

 Key business sectors, property and banking, account for more than half of the revenue, contributing 34.3 per cent and 18.9 per cent, respectively.

 Given the downturn in the stock and property markets in recent months, it is doubtful that such growth can be repeated in the current financial year. However, tax advisers still expect limited growth in revenue.

 'The only fluctuation is stamp duty,' said Marcellus Wong, a tax partner at Arthur Andersen, adding that as profits tax represented those earned in the previous year, a drop in this bracket was not expected until the 1998-99 financial year.

 'If property development companies do not do well this year, this may affect revenue significantly,' Mr Wong said. 'We are also forecasting banking profits to drop.'  He said the healthy growth in revenue meant the Government was in a position to cut profits tax in the next Budget, which would stimulate investment and in turn create job opportunities, boost consumption and increase gross domestic product growth.

 'It's these accelerating effects that we are citing to urge the Government to cut tax,' Mr Wong said.

 The current profits tax rate is 16.5 per cent, which may appear low compared to Singapore's corporate tax rate of 26 per cent.

 Mr Wong said it was the other sweeteners that encouraged growth in Singapore, such as the 10 per cent tax rate for companies moving their headquarters to the city.

 Other cities in the region are also committed to lowering profits tax to lure multinationals.

 Malaysia recently announced it was cutting profits tax to 28 per cent from 30 per cent. The Philippines is knocking the rate down to 30 per cent from 35 per cent, and South Korea now charges 28 per cent, compared with 32 per cent previously.

 Debbie Annells, a tax specialist at Edsaco Horwath, said because taxes only made up about 40 per cent of the Government's Budget - the remainder coming from land sales and premiums - the Government could afford a one percentage point cut in the corporate tax.

 She added that different tax rates made no difference, the level of tax paid depended on how tax packages were structured.

 'It will be a window-dressing exercise,' she said. 'I don't think it will make more people come to Hong Kong.' Research showed that special tax incentives never succeeded in attracting business.



Sharp rise in property and stock deals fuels surprise growth in tax revenue