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Hong Kong Collects Record Tax Revenues

by Mary Swire,, Hong Kong

01 October 2012

Hong Kong’s Commissioner of Inland Revenue Chu Yam-yuen has introduced the 2011-12 Annual Report of the Inland Revenue Department (IRD), pointing out that it collected 14% more in taxes than in the previous year, thereby setting a new record.

In 2011-12, the IRD collected HKD238.3bn (USD30.7bn), an increase of HKD29.3bn over the amount collected in the previous year. The increase mainly came from profits tax and salaries tax collections. Profits tax soared by 27% to HKD118.6bn, while salaries tax climbed 17% to HKD51.8bn. Stamp duty, on the other hand, dropped by HKD6.6bn or 13%, and stood at HKD44.4bn.

The increase in revenue from profits tax was partly attributable to the all-time high collection of back tax and penalties recovered, which increased by 77% as compared with the previous year.

Over the past few years, it was said, the Field Audit and Investigation Unit had put in great efforts to tackle those tax avoidance schemes involving large amounts of interest deductions, which took place before the 2004 Inland Revenue (Amendment) Ordinance came into force. In 2011-12, the Unit completed the audit of a number of such schemes resulting in substantial amounts of tax recoveries.

The IRD’s increased results were also achieved without increasing its staff. To cope with the increasing workload, it has been making intensive use of information technology in business operations, and remains proactive in identifying new initiatives to enhance its productivity and improve services to the public.

For example, in August 2011, the IRD launched an electronic filing service for employers on the eTAX platform. For the first time, employers could file electronic notifications for their employees in respect of commencement of employment, cessation of employment and departure from Hong Kong.

In addition, with effect from April 2012, the eTAX filing service has been extended to annual employer’s returns, and, during the year, the Business Registration Office and the Companies Registry jointly introduced an additional one-stop notification service at the e-Registry of the Companies Registry. By using this electronic service, corporations have the option to update their registered office address and business address in just one notification.

On the taxation arrangements for cross-border employees, the IRD and China’s State of Administration of Taxation (SAT) have recently reached a consensus on the issue of double taxation faced by these employees, after several rounds of discussion. To help reduce the incidence of double taxation on individual income of cross-border employees, and taking into consideration the suggestions by various parties, both IRD and SAT have agreed to adopt “the number of physical presence days” as the basis for allocating taxable income.

Hong Kong, he said, has also taken remarkable steps forward in establishing its international tax treaty network in recent years. The amendment to the Inland Revenue Ordinance in March 2010 enabled Hong Kong to adopt the international standard in exchange of information arrangements, and, since then, the tax treaty network of Hong Kong has expanded rapidly. As at March 31, 2012, Hong Kong had signed a total of 23 comprehensive double taxation agreements, of which 17 were in force by that date.

The Phase 1 peer review of Hong Kong by the Global Forum on Transparency and Exchange of Information for Tax Purposes, of which Hong Kong is a member, examined the legal and regulatory framework of Hong Kong and was carried out from April to September 2011. It affirmed the efforts of Hong Kong in enhancing tax transparency, and concluded that Hong Kong has an adequate legal and regulatory framework to facilitate the effective exchange of information.

It also concluded that Hong Kong could enter into the Phase 2 peer review, which will evaluate the implementation of the standard in practice, and will commence towards the end of 2012.

TAGS: individuals | compliance | tax | business | double tax agreement (DTA) | tax compliance | tax avoidance | law | corporation tax | China | agreements | stamp duty | Hong Kong | revenue statistics | penalties | individual income tax

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