PLC Paper No. CB(2) 387
Ref : CB2/SS/2/97
Paper for the House Committee meeting
on 3 October 1997
Report of the Subcommittee on
Subsidiary Legislation Gazetted on
5 September 1997 relating to Fee Increases
This paper reports on the deliberations of the Subcommittee on Subsidiary Legislation Gazetted on 5 September 1997 relating to Fee Increases.
2Eight items of subsidiary legislation relating to fee increases were tabled at the Provisional Legislative Council (PLC) meeting on 10 September 1997. They are as follows:
- Securities and Futures Commission (Fees) (Amendment) Rules 1997 (L.N. 430)
- Immigration (Amendment) Regulation 1997 (L. N. 432)
- Registration of Persons (Amendment) Regulation 1997 (L.N. 433)
- Marriage Reform (Fees) (Amendment) Regulation 1997 (L. N. 434)
- Births Registration (Special Registers) Ordinance (Amendment of Fifth Schedule) Order 1997 (L.N. 435)
- Deaths Registration (Special Registers) Ordinance (Amendment of Fourth Schedule) Order 1997 (L.N. 436)
- Marriage Ordinance (Amendment of Second Schedule) Order 1997 (L.N. 437)
- Trade Marks (Amendment) Rules 1997 (L.N. 438)
3.The deadline for amendment to these Amendment Regulations, Rules and Orders is 8 October 1997 (or 15 October 1997 if extended by resolution). At the House Committee meeting on 12 September 1997, Members agreed to form a subcommittee to study these eight items. To allow more time for scrutiny of these Amendment Regulations, Rules and Orders, Dr Hon LEONG Che-hung, Chairman of the House Committee, moved a motion at the PLC meeting on 27 September 1997 to extend the period for amending the subsidiary legislation to the PLC meeting on 15 October 1997.
4.Under the Chairmanship of Hon James TIEN, the Subcommittee held a meeting with the Administration on 22 September 1997. The membership list of the Subcommittee is in the Appendix.
Deliberations of the Subcommittee
5.The main points discussed by the Subcommittee are summarized below.
Securities and Futures Commission (Fees) (Amendment) Rules 1997
6.The Amendment Rules propose to :
- increase and restructure various fees payable under the Securities and Futures Commission (Fees) Rules (Cap. 24 sub. leg.); and
- introduce two new items -
- fee payable on application for the purposes of the Financial Resources Rules (Cap. 24 sub. leg.) to approve the extension of the repayment date of a subordinated loan which has been excluded from computations of net tangible assets, ranking liabilities, or adjusted liabilities (section 5(h)); and
- fee payable on application under section 26A of the Securities and Futures Commission Ordinance (Cap. 24) for approval to a person being a substantial shareholder in a registered person that is a corporation (section 5(i)).
7.Members of the Subcommittee have noted that, at present, the Securities and Futures Commission (SFC) is approximately one-third funded by fees and charges in relation to services provided by SFC and two-third by transaction levy. In view of the considerable increase in transaction levy received by SFC due to buoyant market activities in the last couple years, members have questioned whether the level of levy and the funding ratio would be adjusted. The Administration has advised that if the reserves of SFC reaches an amount equivalent to twice the estimated operating costs, SFC is obliged under the law to consult the Financial Secretary. In accordance with the users pay principle, the transaction levy would not be used to subsidize services provided for market participants or users.
8.The Administration has also explained that as a result of the cost recovery programme, full cost recovery has generally been achieved in respect of services relating to intermediaries. The proposed increase on fees and charges relating to intermediaries, which range from 7% to 11%, is in line with the cumulated inflation since the last fee revision in 1994. The proposed increases on fees for services relating to investment products, which range from 4% to 13%, will improve the cost recovery level from 62% to 70%. The proposed increase on fees relating to corporate finance, which were last revised in 1993, will raise the cost recovery level from 19% to 24%.
9.Members have further been advised by the Administration that the transaction levy received by SFC for the period of January to August 1997 amounted to HK$328 million, as compared with HK$107 million for the same period in 1996; and that the cost recovery rate in respect of fees and charges relating to intermediaries at existing fee level is about 86% of the operating cost for the intermediaries section at 1997-98 prices.
10.Members express concern about the impact of reinstatement of fee payable on application for exemption from the Securities (Disclosure of Interests) Ordinance(SDIO) (Cap. 396) (item 29) in relation to debt instrument/securities, in particular if there are a large number of such applications. They are also concerned that Hong Kong might lose its competitiveness to the neighbouring markets due to the high level of fees on services relating to debt instrument/securities. The Administration has explained that as a matter of policy, SFC has waived fees for such applications for exemption in order to assist the development of the debt market. The market, in value terms, has grown about 60 folds from US$1.5 billion in 1992 to US$92 billion in 1996. As the market has become more mature and established, SFC intends to reinstate the fee so as to bring them in line with the cost recovery principle as applied to other instruments. In drawing up the fee level, SFC has taken into account the relevant fee level in neighbouring markets. Hong Kong ranks middle among eight markets in terms of fee level. The Administration has further advised that for the year to 31 March 1997, SFC has granted 72 exemptions under SDIO relating to debt securities.
11.Members are dissatisfied with the arrangement that the Rules, which were tabled on 10 September 1997, have already taken effect on 16 September 1997 as it would set an undesirable precedent where an item of subsidiary legislation comes into operation before the Legislature actually has the opportunity to study it. This would also deprive members of their right to amend or repeal the subsidiary legislation if government revenue is involved. Members have reservations about supporting the fee proposals based on the information available and the fact that SFC's operation would not be affected if the fees and charges are frozen at the existing level due to the huge revenue from transaction levy and the reserves of SFC. In conclusion, the Subcommittee has agreed that the Amendment Rules be repealed.
12.Members have been advised :
- that the resolution to repeal the Amendment Rules, if passed at the PLC meeting on 15 October 1997, will take effect on the date of publication in the Gazette, i.e. 17 October 1997. The resolution does not affect anything done or any liability incurred under the Amendment Rules during the period from 16 September to 16 October 1997 by virtue of section 23 of the Interpretation and General Clauses Ordinance (Cap. 1);
- that specific provisions will be made in the resolution to revive the fees previously repealed by the Amendment Rules; and
- that the motion is subject to the ruling on charging effect by the President.
Immigration (Amendment) Regulation 1997
Registration of Persons (Amendment) Regulation 1997
Marriage Reform (Fees) (Amendment) Regulation 1997
Births Registration (Special Registers) Ordinance (Amendment of Fifth Schedule)Order 1997
Deaths Registration (Special Registers) Ordinance (Amendment of Fourth Schedule) Order 1997
Marriage Ordinance (Amendment of Second Schedule) Order 1997
13.The three Amendment Regulations and the three Orders propose to increase fees payable to the Immigration Department for providing services relating to issue of visas and permits, non-passport travel documents, registration of persons and registration of births, deaths and marriages so as to achieve full cost recovery.
14.Members have noted that the proposed increases range from 7% to 17%. As the actual increases of fees in dollar terms range from $10 to $50 in the main, members consider that the revision should be acceptable to the public. The Subcommittee has agreed to support these Amendment Regulations and Orders.
Trade Marks (Amendment) Rules 1997
15.The Amendment Rules seek to increase the fees payable under the Trade Marks Rules (Cap. 43 sub. leg.) in connection with the registration, search and opposition to registration of trade marks, the maintenance and alterations of records.
16.The Administration has explained that it is Government policy that fees should in general be set at levels sufficient to recover the full costs of providing the services. The existing fee level, which represents 82% of the cost calculated at 1997-98 prices, were last revised in November 1994. Taking into account the cost increases over the past three years, the Administration proposes to revise the fees so as to achieve full cost recovery. The average fee increase is about 23%.
17.Members note that there are over 50 items of fees and charges in connection with the registration of trade marks and maintenance of registered trade marks records. The Administration has explained that the fees received on application not otherwise charged to register a trade mark or a series of trade marks (item 3), for registration of a trade mark or a series of trade mark (item 8) and for renewal of registration of a trade mark (item 21) accounted for 92% of the total revenue. In straightforward cases, the fees payable involve only items 3 and 8. The increase in cost from $94 million in 1995-96 to $99 million in 1997-98 (about 6%) reflects the efforts taken by the Intellectual Property Department in improving its operational efficiency. The Administration has also advised that procedures for processing trade mark registrations and the fees in connection therein were made in accordance with the Trade Marks Ordinance. To modernise the trade marks legislation in Hong Kong and, inter alia, to streamline the procedures, the Administration is at present preparing a new Trade Marks Bill. It is expected that the Bill would be introduced into the Legislative Council in 1998.
18.Whilst members support the cost recovery principle, they have reservations about the proposed increases on the grounds that:
- a comprehensive review of the Trade Marks Ordinance is under way which would result in a reform of fee structure;
- the increase in cost from $94 million in 1995-96 to $99 million in 1997-98 is merely about 6% while the average increase is 23%;
- the existing fee level is already set at 82% of the cost; and
- a large surplus of government revenue for 1997-98 is envisaged.
The Subcommittee has concluded that the Amendment Rules be repealed.
19.The Subcommittee recommends that :
- resolutions to repeal the Securities and Futures Commission (Fees) (Amendment) Rules 1997 (L.N. 430) and the Trade Marks (Amendment) Rules 1997 (L.N. 438) be moved by the Chairman of the Subcommittee at the PLC meeting on 15 October 1997;
- the six Amendment Regulations and Orders at paragraph 2(b) to 2(g) above be supported.
20.Members are invited to support the recommendations of the Subcommittee at paragraph 19 above.
Provisional Legislative Council Secretariat
29 September 1997
Subsidiary Legislation on 5 September 1997
relating to Fees Increases
Hon James TIEN Pei-chun, JP (Chairman)
Hon Henry WU
Hon CHAN Choi-hi
Hon CHAN Kam-lam
Hon YEUNG Yiu-chung
Dr Hon LAW Cheung-kwok
Total: 6 members