LegCo Paper No. CB(1) 1890/95-96 (These minutes have been seen by the Administration)
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 Fourth Meeting held
on Monday, 29 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 Ronald ARCULLI, 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
    Hon Paul CHENG Ming-fun
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
    Hon TSANG Kin-shing

Members Absent :

    Hon SIN Chung-kai

Public Officers Attending :

Deputy Secretary for Transport
Mr Augustine L S CHENG
Principal Assistant Secretary for Transport
Mr LEE Shu-chee
Assistant Commissioner for Transport
Transport Department
Mrs Agnes SIN, JP
Deputy Commissioner of Inland Revenue (Technical)
Inland Revenue Department
Mrs CHU WONG Lai-fun
Chief Assessor (Special Duties)
Inland Revenue Department

Attendance by Invitation :

From the Hong Kong Automobile Association
Mr Kendy K C CHAN

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 the Hong Kong Automobile Association on the Inland Revenue (Amendment) (No. 4) Bill 1995

The Chairman welcomed the representative of the Hong Kong Automobile Association to the meeting and invited him to present the Association’s views on the Bill.

2. Mr Kendy CHAN of the Hong Kong Automobile Association (HKAA) said that the HKAA objected to the Bill and none of the 15,000 members of the HKAA were in the support of the Bill. The Association felt that the Bill was unfair to the commercial sector. Since companies which required cars would still keep the cars despite enactment of the Bill, its effectiveness in easing traffic congestion was in doubt. On the contrary, the Bill would increase operating costs which in turn would be passed onto consumers. He drew attention to the fact that car sales in the first two months of 1996 had dropped by 45%.

3. The HKAA was also against the solving of a social problem by fiscal means and was of the view that the move would change the simple and low-tax system of Hong Kong. It was worried that the Bill would set a bad precedent in changing social behaviour by tax measures, and was concerned that more such measures would be introduced.

4. In reply to the Chairman, Mr Paul LEUNG re-iterated that the Bill was only one of the measures to tackle traffic congestion. Although car sales did drop because of the economic downturn, he felt that such a performance would fluctuate. The Administration had no intention of targeting genuine business-car-users but hoped to induce them to think seriously whether to own company private cars.

Meeting with the Administration on the Inland Revenue (Amendment) (No. 4) Bill 1995

Tax Principle and Abuse Cases

5. In response to members, Mrs Agnes SIN confirmed that car-related expenses and depreciation allowances (DAs) were deducible under profits tax if these were incurred in producing assessable profits. She informed that the Inland Revenue Department (IRD) would scrutinize each application for deduction and could disallow the portion of expenses and DAs not related to the production of assessable profits. However, no statistics on the number of disallowed cases were kept.

6. As regards tax abuse cases in respect of the use of company private cars through service company arrangements, Mrs SIN advised that the tax deductibility of car-related expenses and DAs depended on the real-life situation and whether the above-mentioned fundamental tax principle was applicable. She reckoned that the number of such tax abuse cases should be few. A member considered that most cars were for genuine company use and the Bill would have an adverse effect on economic activities in Hong Kong. Since the IRD already had the power and devices to detect abuse cases, the proposed Bill was deemed unnecessary.

"Tax Concession"

7. In referring to the term "tax concession" used by the Administration, a member pointed out that this should only be used when referring to deductions where tax was charged on income; this included, for example, sales tax. For tax which was based on profits, the deduction of reasonable expenses in producing assessable profits should not be regarded as "concession". Such an understanding was commonly accepted among professional accountants.

8. The members further advised that there were two broad principles governing the non-deductibility of expenses in profits tax computations. The first one was when the income was from outside Hong Kong and the second referred to capital investment since capital income was not taxed in Hong Kong. However, DAs in respect of income-producing tools were available in many tax jurisdictions although the rates might vary. The Bill had seriously contravened the general tax principle on tax deductibility of expenses and DAs.

9. In response, Mr LEUNG drew parallel with section 17(1)(l) of the Inland Revenue Ordinance which specified that contributory payments for a non-recognised occupational retirement scheme were not tax-deductible. While admitting that private cars were also a kind of plant and machinery for profits tax purpose, he emphasized that, unlike other types of plant and machinery, private cars would cause traffic congestion and a different tax treatment in respect of private car expenses and DAs might be justified.

Objective of the Bill

10. To address members’ worry that the Bill might set a precedent of using fiscal policies to monitor social behaviour, Mr LEUNG assured members that the Administration had no intention of changing the prevailing tax policy nor prohibiting car ownership. The objective of the Bill was to reduce the number of cars by inducing company car owners to have second thoughts about company private cars and switching to public transport as far as possible. The Administration had a comprehensive package of measures to control vehicle and road usage, including electronic road pricing and bus-only lanes, and the Bill was only one of the proposed measures. A member pointed out that it was impractical for the Administration to expect that public transport could take the place of company cars.

Computer Model

11. In response to members on the basis of the estimated reduction of 8,500 company private cars, Mr LEE Shu-chee explained that in the Second Comprehensive Transport Study, the consultants had developed a suite of computer transport planning models including a car ownership model which could be used to examine the impact on the private car fleet size due to changes in car ownership and usage costs. Based on the results of the computer model runs, it was estimated that about 8,500 company cars could be reduced over a period of time if the tax benefits of company cars were removed. Members doubted the validity of the estimated figure. They pointed out that the model assumed unrealistically that all car expenses and DAs were tax-deductible, whereas the IRD did disallow car-related expenses and DAs in many cases. The Administration had also not taken into account the effect which enactment of the Inland Revenue (Amendment) (No. 2) Ordinance 1995 would have on the use of service companies as a tax-avoidance device. Members requested the Administration to list the major factors considered in the model and re-assess the up-dated situations using different and purposely-built scenarios.

Fiscal Policy

12. In response to a member, Mr LEUNG provided the following figures to support the claim that an increase in First Registration Tax in 1982 did reduce car growth:

Percentage change in car number


as compared with previous year


-3% (The number of licensed cars in

1982 was around 184,000)













13. A member considered the argument unsound and the reduction in car growth temporary as many satellite towns had not yet been developed in 1982. With the development of new towns in the mid-80s and without mass transit systems to link up satellite towns with the urban area, cars had become a necessity for residents of these new towns. Turning to the effect of the increase in passage tax of the Cross Harbour Tunnel (CHT) in Hunghom, the member observed that doubling the passage tax had not reduced congestion at the CHT. Another member pointed out that the proposed Bill and the tax-related fiscal policy were superfluous since the sluggish economy had already helped to contain car growth.

14. Mr LEUNG advised in response to a member that the three Bills, whether introduced as a package or separately, would be effective in tackling congestion, although he acknowledged that the Inland Revenue (Amendment) (No. 4) Bill 1995 was not an essential measure.

Way Forward

15. Members urged the Administration to provide written responses to the views and concerns of members and deputations on the three Bills, and agreed to schedule the next meeting on Monday, 20 May 1996 at 4:30 pm to consider the Administration’s response.

16. There being no other business, the meeting ended at 5:35 pm.

Council Business Division 1

LegCo Secretariat
23 July 1996

Last Updated on 23 Apr, 1997