For discussion
on 31 January 1997


Subhead 189 Interest on tax reserve certificates

Members are invited to approve supplementary provision of $33.5 million under Subhead 189 Interest on tax reserve certificates.


The approved provision for the payment of interest on Tax Reserve Certificates (TRC) is insufficient to meet increased expenditure in 1996-97.


2. The Commissioner of Inland Revenue (CIR) proposes supplementary provision of $33.5 million under Subhead 189 Interest on tax reserve certificates.


3. Subhead 189 is for the payment of interest on TRC by the CIR under the Tax Reserve Certificates Ordinance (Cap. 289). A taxpayer normally may buy TRC in two circumstances: first, to meet future payment of tax and, second, where a taxpayer has objected to an assessment and has been required to buy certificates by the CIR under section 71(2) of the Inland Revenue Ordinance (Cap. 112) as security for the payment of tax held over in dispute. For the former, interest is payable when the taxpayer redeems the certificates to pay tax, subject to a maximum interest earning period of 36

months. For the latter, according to section 71(2) of the Inland Revenue Ordinance, where the final decision in respect of the objection or appeal case is made in favour of the taxpayer, interest will be payable on the TRCs purchased without any limit on the interest earning period. On the other hand, where the decision is against the taxpayer or where the taxpayer withdraws the objection or appeal, no interest will be payable.

4. On the basis of the actual expenditure for the nine months from April to December 1996, the CIR estimates that the expenditure in the current financial year will exceed the approved provision by $33.5 million, calculated as follows -

$ million


Expenditure from 1 April to 31 December 1996



Estimated expenditure from 1 January to 31 March 1997



Estimated total expenditure for 1996-97 [(a) + (b)]




Approved provision



Shortfall [(c) - (d)]


5. The proposed supplementary provision is necessary because of the following factors -

  1. payment of interest for seven objection or appeal cases involving TRCs with substantial values. These cases are expected to be settled before March 1997 and if the outcome is in favour of the taxpayers concerned, a total amount of $25.4 million will be required;
  2. an increase in payment of interest as a result of the higher than expected amount of TRC which CIR has required for other objection or appeal cases. In the light of the actual payment made in the past nine months, we estimate this to account for an additional $7.1 million; and
  3. an increase in payment of interest for TRCs purchased by taxpayers voluntarily, partly as a result of the introduction of the Pay-As-You-Earn Scheme. This accounts for $1 million of the supplementary provision required.


6. If Members approve the proposal, we shall offset the supplementary provision of $33.5 million by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 251 Additional commitments.

Finance Branch

January 1997

Last Updated on 5 August 1999