I refer to the article headlined, 'Reserves ripe for refunds', by C K Lau (South China Morning Post, June 5).
The comments regarding provisional tax require clarification. In particular, it was suggested that our present provisional tax system amounts to one under which Government borrows money from taxpayers.
In law a taxpayer is liable to pay tax on the income earned by him which is chargeable to tax for the current year of assessment.
It should be appreciated that, contrary to the implication in the article, provisional tax payments do not in general involve any prepayment of tax; by the time the tax is paid, a taxpayer will have already earned the relevant income. Taking the provisional salaries tax for the 1997-98 year of assessment as an example, the relevant income is the amount earned from April 1997 to March 1998.
The first instalment of the 1997-98 provisional salaries tax will only be due between January and March 1998, with the second instalment due between April and June 1998.
In other words, when the time comes for a taxpayer to pay the first instalment (75 per cent of the provisional tax), he or she will have already earned income for at least the nine months period from April 1997 to December 1997. The second instalment to pay the remaining 25 per cent will not actually be paid until after the end of 1997-98 year of assessment.
