Another 45,000 wage earners will be scooped into the tax net in the coming financial year, when the tax-free earnings allowance falls by $4,000.
The cut is the second phase of the adjustment in salaries tax proposed in former financial secretary Antony Leung Kam-chung's budget last year. He recommended restoring tax bands and marginal tax rates to pre-handover levels in two equal phases.
The adjustment for the coming financial year will see the basic tax allowance - the amount of earnings on which no tax is levied - drop from $104,000 this financial year to $100,000. The married persons' tax allowance will be cut by $8,000, to $200,000.
The single parent allowance will also be reduced from $104,000 this year to $100,000 in 2004-05.
The tax rate for top income earners will rise by half of one per cent, to 16 per cent.
Tax bands will narrow from $32,500 this year to $30,000. Tax will be levied at a rate of 2 per cent on the first $30,000, 8 per cent on the next, 14 per cent on the next and 20 per cent on the rest of their income.