Provisional Legislative Council

PLC Paper No. CB(1)865
(These minutes have been
seen by the Administration)

Ref : CB1/BC/3/97

Bills Committee on
Provident Fund Schemes
Legislation (Amendment) Bill 1997

Minutes of the meeting held on Monday, 15 December 1997, at 10:45 am in Chamber of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon LEE Kai-ming
Hon Henry WU
Dr Hon Mrs TSO WONG Man-yin
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon Ambrose LAU Hon-chuen, JP
Dr Hon TANG Siu-tong, JP
Hon NGAN Kam-chuen

Members absent :

Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Mrs Peggy LAM, JP
Hon MA Fung-kwok
Hon YEUNG Yiu-chung
Hon Paul CHENG Ming-fun, JP
Hon CHOY So-yuk

Public officers attending :

Mrs Pamela TAN
Mandatory Provident Fund Office

Ms Maisie CHENG
Assistant Director
Scheme Operations

Mr Raymond TAM
Assistant Director
Regulatory Standards

Mr Geoffrey FOX
Senior Assistant Law Draftsman
Department of Justice

Mr LUK Nai-man
Assistant Commissioner, Unit 2(2)
Inland Revenue Department

Ms Imelda CHIU Hau-lin
Technical Secretary
Inland Revenue Department
Clerk in attendance:

Miss Polly YEUNG
Chief Assistant Secretary (1)3

Clerk in attendance:

Mr LEE Yu-sung
Senior Assistant Legal Adviser

Miss Anita HO
Assistant Legal Adviser 2

Mr Daniel HUI
Senior Assistant Secretary (1)5

I.Meeting with the Administration

Members continued the scrutiny of proposed amendments to the Mandatory Provident Fund Schemes Ordinance (MPFSO) and other relevant ordinances as set out in the Bill.

Proposed amendments to the MPFSO

Proposed sections 45, 45A, 45B, 45C, 45D

2.The Assistant Director/Regulatory Standards (AD/RS) informed members that proposed sections 45 to 45D would provide a mechanism for the MPF Schemes Authority (MPFA) to require payment of a prescribed financial penalty by persons who had failed to perform certain duties under the MPFSO. AD/RS eleborated as follows:

  1. proposed section 45A would provide for the making of regulations on financial penalty;

  2. proposed section 45B would empower the MPFA to serve a notice requiring payment of financial penalty in prescribed circumstances;

  3. proposed section 45C would enable the MPFA to recover unpaid financial penalties by proceedings brought in the District Court; and

  4. proposed section 45D would provide that financial penalties paid or recovered would be paid into the MFPA Administration Account.

3.In reply to members, AD/RS confirmed that the draft MPF Schemes (General) Regulation would stipulate the circumstances under which financial penalty would be payable and the amounts of financial penalty to be imposed, which would be structured by first, second and subsequent failure to perform a duty under the MPFSO.

4.Some members were concerned about the litigation costs which would be incurred by the MPFA in recovering a relatively small amount of financial penalty under proposed section 45C. In response, the Assistant Director/Scheme Operations (AD/SO) explained that the proposed section would serve to equip the MPFA with a legal recourse. She did not anticipate that the MPFA would resort to legal proceedings too readily in seeking to recover financial penalties. On the issue of costs, the Senior Assistant Legal Adviser (SALA) advised that under proposed section 45C(6), the District Court might award costs to either party in proceedings brought under the proposed section.

5.In this connection, members agreed to further examine the proposed provisions on financial penalties when considering the draft subsidiary legislation.

Proposed section 45G

6.Upon the bankruptcy or winding up of an employer, members were concerned about the debt priority of MPF contributions in arrears, as compared with taxes due to the Government, employees’ wages in arrears, wages in lieu of notice and severance payment. The Administration agreed to check the statutory position and revert in writing. Admin.

7.In reply to a member, AD/SO confirmed that if an employer had defaulted payment of both MPF contributions and financial penalties payable to the MPFA and where its financial resources could not meet both obligations, the employer would be required to repay the outstanding MPF contributions first.

Proposed section 46

8.On whether the prescribing of a retirement age under proposed section 46(1A)(c) would contravene any legislation on age discrimination, D/MPF Office (D/MPFO) advised that the proposed section did not contravene any existing legislation but the Administration would keep in view the need to amend the MPFSO in the light of the enactment of legislation on age discrimination in future.

9.SALA was of the view that the amended wordings in proposed section 46(3) would cast doubt on the power of the legislature under section 35 of Cap. 1 to approve subsidiary legislation made under the MPFSO. In reply, the Administration confirmed that there was no intention to alter the existing arrangement and the proposed amendments had only been made on drafting considerations. To remove doubt, the Administration would move a Committee stage amendment (CSA) to retain the existing wording of section 46(3). Admin.

Proposed section 47

10.Similar to proposed section 46(3), the Administration would move a CSA to retain the existing wording of section 47(4) so as to remove any doubt about the legislature’s power to approve the subsidiary legislation in accordance with section 35 of Cap.1. Admin

Proposed section 47A

11.D/SO informed members that proposed section 47A would empower the MPFA to specify or approve the forms and the contents of documents to be submitted under the MPFSO. The proposed arrangement would provide greater flexibility and efficiency in the work of the MPFA.

Proposed Schedule 1

12.On proposed item 8 of Part I, the Administration would, as requested by the Chairman, clarify whether the expression "(other than a self-employed person)" qualified "any employer" or "a person". Admin.

13.In reply to a member, AD/SO confirmed that a hawker would need to arrange MPF coverage for his employees but the hawker who was a self-employed person would be exempted from the MPFSO by virtue of item 2 of Part II of the proposed Schedule. At members’ request, the Administration would provide the definition of "hawkers" under the Public Health and Municipal Services Ordinance (Cap.132). Admin.

14.In reply to the Deputy Chairman’s enquiry on the status of full-time legislators under the MPFSO, AD/SO provided the following clarifications:

  1. allowances paid to a legislator would not be considered as salary paid by an employer because a legislator provided public services to the community and he was not an employee of the Government while occupying the office of a legislator;

  2. a legislator would not be considered as a self-employed person because the allowances he received were not assessable profits for the purpose of the Notice of Assessment issued by the Inland Revenue Department; and

  3. as such, in his capacity as a full-time legislator, a person would not fall within the ambit of the MPFSO.

Proposed Schedule 5A

15.The Chairman questioned the purpose of specifying in proposed section 3 that at an inquiry to determine whether to terminate an approved trustee’s administration of a registered MPF Scheme, the proceedings were to be inquisitorial and not adversarial. In response, the Senior Assistant Law Draftsman (SALD) confirmed that there were no similar provisions in other ordinances but the Administration would consider whether the proposed section should be retained in its present form. Admin.

Proposed Schedule 6

16.AD/SO confirmed that all major decisions which might be the subject of an appeal under the MPFSO had been included in proposed Schedule 6.

Proposed Schedule 8

17.AD/RS advised that the proposed Schedule specified the persons who would be treated as associates of approved trustees and others for the purposes of the MPFSO. The Chairman enquired about the reasons for incorporating the four categories of exclusions in proposed sections 14 to 17. The Administration undertook to check on the issue and revert to the Committee later. Admin.

18.In reply to the Chairman, the Administration would review the appropriateness or otherwise of presenting the title of a section in the form of a question such as in proposed section 19.Admin.

19.At the Chairman’s request, the Administration would check whether the proposed definition of "a subsidiary company" in proposed section 19 tallied with the definition of a similar expression in the Companies Ordinance. Admin.

Proposed amendments to the Insurance Companies Ordinance

20.AD/RS informed members that the proposed amendments to the Ordinance sought to :-

  1. allow the Insurance Authority to disclose information to the MFPA; and

  2. include retirement schemes business managed by authorized insurers under the classes of long term business in respect of which an actuary certificate would be required.

Proposed amendments to the Occupational Retirement Schemes Ordinance (ORSO)

21.Members noted that the objectives of proposed amendments to the ORSO were:-

  1. to exempt a registered MPF Scheme from provisions in the ORSO;

  2. to provide for recovery of arrears of contributions in respect of ORSO schemes exempted from the MPFSO;

  3. to clarify the provisions on off-setting ORSO scheme benefits against long services payments (LSP) and severance payments (SP); and

  4. to allow the Registrar of Occupational Retirement Schemes to disclose information to the MFPA.

Proposed amendments to the Employment Ordinance (EO)

22.AD/SO informed members that the proposed amendments to the EO were consequential amendments in respect of the provisions on off-setting retirement benefits against LSP and SP to tie in with the implementation of the MPF system. AD/SO further advised that the Labour Advisory Board had noted the proposed amendments to the EO.

Proposed amendments to the Inland Revenue Ordinance (IRO)

23.Introducing the proposed amendments to the IRO, the Assistant Commissioner/Inland Revenue Department (AC/IRD) said that the proposed amendments were consequential amendments seeking to extend the existing tax arrangements for retirement benefits to MPF accrued benefits. He also provided the following clarifications:

  1. proposed section 8(2)(cb) would provide for salaries tax exemption for MPF accrued benefits attributable to mandatory contributions (from both the employer and employee) withdrawn upon the employee’s death, incapacity, retirement or permanent departure from Hong Kong;

  2. proposed section 8(4) would provide that on termination of the employee’s service MPF accrued benefits attributable to his/her employer’s voluntary contributions would be exempted from salary tax subject to the application of the "proportionate benefits rule" the details of which were set out in proposed sections 8(5) and 8(6). The general rule was that the portion of tax-exempted MPF accrued benefits attributable to the employer’s voluntary contribution would be determined with reference to the employee’s years of service. The portion would be exempted from salaries tax in full where the employee had 10 or more years of service;

  3. under proposed section 15(1)(h), the refund of the employer’s contributions under a MPF Scheme would be treated as a taxable item for the purpose of profits tax; and

  4. proposed section 16A would provide for deduction under profits tax the special voluntary contributions made by an employer under a MPF Scheme so as to be in line with existing arrangements for recognized occupational retirement schemes.

24.AC/IRD further said that the Administration would move the following CSAs:-


  1. to delete "(.......................... )" in the Chinese version of proposed section 9(1)(ae) which had been included inadvertently; and

  2. to improve the drafting in both the English and Chinese versions of proposed sections 17(h)(i), (ii) and (iii); and 17(k)(i), (ii) and (iii).

25.Noting that the MPF System would provide retirement benefits to the majority of employees, particularly the low-income workers who were presently not covered by any retirement schemes, some members suggested that the Administration should take the opportunity to review the existing tax treatments and their suggestions included the following:- Admin.

  1. monthly MPF contributions of employers and employees should be tax deductible; and

  2. in applying the "proportionate benefits rule", the percentage of relevant contribution (i.e. voluntary contribution made not to exceed a specified percentage of the salary), instead of 10 years’ qualifying service, should be used as the criterion in determining whether a certain portion of accrued benefits should be tax deductible.

26.In this connection, D/MPFO confirmed that the consequential amendments to the IRO involved no policy changes and they merely served to extend the existing tax arrangements for retirement benefits to MPF accrued benefits so as to facilitate implementation of the MPF system. At members’ request, the Administration would provide an information paper comparing the existing and proposed tax arrangements for various scenarios under the ORSO and the MPFSO for members’ consideration. Admin.

II.Any other business

27.The Chairman reminded members that the next meeting of the Bills Committee would be held on 16 December 1997 at 8:30 am.

28.The meeting ended at 12:45 pm.

Provisional Legislative Council Secretariat
3 February 1998