PLC Paper No. LS 119

Paper for the House Committee Meeting
of the Provisional Legislative Council
on 6 March 1998

Legal Service Division Report on
Inland Revenue (Amendment) (No. 2) Bill 1998

Objects of the Bill

To implement the Budget proposals in relation to Profits Tax in the 1998-99 Budget.

Provisional LegCo Brief Reference

2. FIN SCR 7/2201/97 dated 26 February 1998 issued by the Finance Bureau.

Date of First Reading

3. 4 March 1998.


4. In his 1998-99 Budget Speech, the Financial Secretary made various proposals relating to Profits Tax in paragraphs 115 to 117. This Bill provides the legislative framework to implement the proposals and proposes other related amendments to the Inland Revenue Ordinance (Cap. 112). The proposals contained in the Bill are as follows:-

  1. to introduce a concessionary tax rate at 50% of the standard Profits Tax rate applicable to corporations in favour of professional reinsurers in respect of profits derived from reinsurance of offshore risks (clauses 5 and 14, Budget Speech paragraph 116 item 2);

  2. to expand the deduction allowed in respect of expenditure on scientific research to cover activities carried on for the purposes of any feasibility study or in relation to any market, business or management research (clause 7, Budget Speech paragraph 116 item 3);

  3. to extend the deduction originally allowed only in respect of expenditure on hotel refurbishment to cover capital expenditure incurred on the refurbishment on all non-domestic buildings (clause 8, Budget Speech paragraph 116 item 4);

  4. to add a new head for the deduction of expenditure on machinery and plant related to manufacturing processes as well as computer hardware and software by providing for a 100% immediate write-off in respect of the expenditure (clause 9, Budget Speech paragraph 116 item 5);

  5. to provide for the adjustment of losses between assessable profits chargeable to tax at normal and concessionary rates of tax (clause 12);

  6. to provide for reciprocal exemption of Profits Tax for certain ship-owners (clause 15, Budget Speech paragraph 115 item 2);

  7. to expand the scope of the exemption allowed in respect of mutual fund corporations, unit trusts and other similar collective investment schemes (clause 16, Budget Speech paragraph 116 item 1);

  8. to increase the annual allowance for expenditure incurred on the construction of commercial buildings from 2% to 4% (clause 17, Budget Speech paragraph 116 item 6);

  9. to provide for applications for advance rulings by the Commissioner of Inland Revenue (clauses 30 and 32, Budget Speech paragraph 114); and

  10. to reduce the standard rate of Profits Tax in respect of a corporation from 16.5% to 16% (clause 31, Budget Speech paragraph 117).

The above proposals are intended to apply to the year of assessment commencing on 1 April 1998 and to all subsequent years of assessment.


The Legal Service Division is still scrutinizing the technical aspects of the Bill. A further report will be issued upon completion of scrutiny.

Prepared by

LEE Yu-sung
Senior Assistant Legal Adviser
Provisional Legislative Council Secretariat
4 March 1998