LegCo Paper No. CB(1) 1889/95-96
Ref : CB1/BC/18/95/2

Bills Committee on
Road Traffic (Amendment) (No. 3) Bill 1995
Eastern Harbour Crossing Road Tunnel (Passage Tax) Bill
& Inland Revenue (Amendment) (No. 4) Bill 1995

Minutes of the Third Meeting held
on Monday, 15 April 1996 at 4:30 pm
in Conference Room B of the Legislative Council Building

Members Present :

    Hon CHAN Kam-lam (Chairman)
    Hon Mrs Selina CHOW, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon Eric LI Ka-cheung, JP
    Hon Zachary WONG Wai-yin
    Hon CHAN Wing-chan
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Members Absent :

    Hon Ronald ARCULLI, OBE, JP
    Hon Paul CHENG Ming-fun

Public Officers Attending :

From the Administration
Mrs Hedy CHU
Assistant Secretary for Transport

Attendance by Invitation :

From the Association of International Accountants
Hong Kong Branch)

Mr Tommy TAM Hok-lam
Mr David LAI Dak-wing
Mr Phileas FOK Kwan-wing
Mr Alexander LEE Chi-sing

From the Finance Houses Association of Hong Kong
Mr Martin K P LAI
Mr Ronald N Forte

From the Federation of Hong Kong Industries

From the Joint Liaison Committee on Taxation
Mr Marshall H Byres

From the Taxation Institute of Hong Kong
Mr Marcellus WONG
Mr Peter Lawrence
Mr Jeff Vanderwolk

Staff in Attendance :

Mrs Vivian KAM
Chief Assistant Secretary (1)2
Ms Kitty CHENG
Assistant Legal Adviser 2
Mr Billy TAM
Senior Assistant Secretary (1)4

Meeting with Deputations and Views on the Inland Revenue (Amendment) (No. 4) Bill 1995

The Chairman welcomed representatives of each of the five deputations to the meeting and invited them to elaborate on their views on the Bill.

(A) The Association of International Accountants (Hong Kong Branch)

2. Mr TAM Hok-lam of the Association of International Accountants (Hong Kong Branch) said that the Association objected to the Bill as a whole. The Bill contravened the tax principle and created a bad precedent of changing social behaviour by tax measures. Since traffic congestion was not cause directly by business operations, it was unfair for company private cars to be penalised. Furthermore, companies would be in a position to control their own costs and it was unnecessary for the Government to use tax measures to encourage companies to be cost-conscious.

3. In response to a member, Mr TAM said that he had no knowledge of overseas countries using tax means to solve social problems. While one member said that some countries did grant tax concessions for persons pursuing further studies, another member pointed out that this was a form of encouragement rather than penalty.

4. Mr FOK Kwan-wing added that the proposed Bill was unnecessary since the Commissioner of Inland Revenue already had the power to disallow non-business related car expenses. He also advised that ever since the recent amendments to the Inland Revenue Ordinance, the previous tax-avoidance arrangements through service companies had been discouraged. As a result, tax abuse cases would have decreased.

5. On whether companies would buy less cars upon enactment of the Bill, Mr TAM said that it would be difficult to provide such an estimate since this would be determined by the operational need of companies concerned. As regards a suggestion for changing the depreciation allowance rate to a straight line annual rate of 20%, Mr LAI Dak-wing reckoned that this would still be inequitable and would increase the administrative efforts of the Inland Revenue Department.

(B) The Finance House Association of Hong Kong

6. Representatives from the Finance House Association of Hong Kong also objected to the Bill. Mr Martin LAI said that the Bill would severely affect the car loan industry and deprive customers of the choice of car-financing companies. On a broader scope, the Bill would tarnish Hong Kong’s reputation as a low and simple tax territory, aggravate unemployment as a result of downsizing of companies, and create a negative chain effect on other tourism-related industries. Mr LAI doubted the wisdom of the Government to use a tax scheme to cure a social problem.

7. Mr LAI explained in reply to a member that members of the Association comprised mainly of banks and car financing companies; the loan advanced by members of the Association in 1994 amounted to approximately $2.9 billion. He estimated that the tax burden on a car-financing company might increase by as much as 4.5 times and the Bill would have a significant adverse impact on the economy of Hong Kong.

(C) The Federation of Hong Kong Industries

8. Mr W K LO from the Federation of Hong Kong Industries said that members of the Federation were against the Bill and had put forward the following arguments:

  1. the Bill would change the simple and low-tax system in Hong Kong and it was in effect an increase in tax;
  2. the Bill would have a significant impact on small business which formed the backbone of Hong Kong’s business activities;
  3. cars were essential in conducting businesses. As far as abuses were concerned, the Commissioner of Inland Revenue already had the power to disallow non business-related car expenses; and
  4. with the plunge in the number of newly registered private cars, the proposed Bill was unnecessary. Moreover, the effectiveness of the Bill was in doubt since it only discouraged car ownership and not road usage.

The Federation was of the view that the Government should seriously look into using electronic road pricing to tackle traffic congestion.

9. In response to a member, Mr LO said that the Federation did not have data to support or disprove the Government’s assertion that 25% of private cars were company owned. He emphasised that cars were an essential tool of companies and the Bill would affect the companies’ operation; neither would it be practical to turn to public transport.

(D) The Joint Liaison Committee on Taxation

10. Mr Marshall H Byres of the Joint Liaison Committee on Taxation briefed members on the background of the Committee. It was formed about a decade ago and comprised tax professionals who held monthly meetings to consider issues concerning the profession; it also served as a liaison body between the Government and the profession. The Committee’s view was that the Bill set a bad precedent of using a tax measure to achieve a non-fiscal objective and ran contrary to the doctrine upheld by the former and the present Financial Secretaries that pursuit of on-fiscal objectives by fiscal means using tax measures should only be sought when the issue was exceptional and when all means had been used but failed.

11. Mr Byres criticised the Bill as being a retrograde step and as a blunt instrument for manipulating people’s behaviour. Moreover, there was no indication in the Explanatory Memorandum of the Bill on what the actual yield would be. He emphasised that the deduction of depreciation allowances and car-related expenses should not be regarded as a tax concession. In response to members, Mr Byres said that as compared to the overseas practices of calculating depreciation allowances of cars, the depreciation allowances in Hong Kong were on the high side.

(E) The Taxation Institute of Hong Kong

12. Mr Peter Lawrence and Mr Jeff Vanderwolk from the Taxation Institute of Hong Kong said that the Institute upheld the principles that the tax system should be a simple one and that tax laws should not be amended for solving non-fiscal problems. The proposed Bill violated such principles and was contrary to the trend in other countries which were trying to simplify their tax systems. As non-profit making organisations and government fleet were not caught by the provisions, and since companies might just turn to less expensive cars to make up for the costs, the Bill would not be effective in achieving its objective. Mr Marcellus WONG added that the Bill would create economic distortions as the costs would be passed onto consumers; it would also not be conducive to the promotion of business activities in Hong Kong.

13. Mr Lawrence reckoned, in reply to a member, that the depreciation allowance for company private cars in Hong Kong was generous, but supplemented that the annual allowances in other countries might range from 20% to as high as 100%.

Way Forward

14. Members agreed that the next meeting be held on Monday, 29 April 1996 at 4:30 pm and that representatives from the Inland Revenue Department (IRD) be invited to give a briefing on the Inland Revenue (Amendment) (No. 4) Bill 1995 and to address the concerns of members and the deputations relating to the Bill. These would include for example the feasibility of alternative rates and calculations of depreciation allowances for cars, IRD’s views on the Bill with particular emphasis on the general tax principle and administrative effort involved, the impact of the Bill on industries such as car rental, car financing, hotel operator and public utilities, and the average life span of company-owned private cars. Members also agreed to meet other deputations who might make representations to the Bills Committee in the meantime.

15. There being no other business, the meeting ended at 6:15 pm

Council Business Division 1
LegCo Secretariat
23 July 1996

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