Provisional Legislative Council

PLC Paper No. CB(1) 1311
(These minutes have been
seen by the Administration)

Ref : CB1/BC/9/97/2

Bills Committee on Dutiable Commodities (Amendment) Bill 1998

Minutes of meeting held on
Tuesday, 10 March 1998, at 10:45 am
in Conference Room B of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Hon WONG Siu-yee
Hon HO Sai-chu, JP
Hon LEE Kai-ming
Hon CHAN Yuen-han
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon Bruce LIU Sing-lee
Hon Mrs Miriam LAU Kin-yee, JP

Members absent :

Hon Mrs Selina CHOW, JP
Hon Henry TANG Ying-yen, JP
Hon MA Fung-kwok
Dr Hon LEONG Che-hung, JP

Public officers attending :

Finance Bureau

Mr Martin Glass,
Deputy Secretary for the Treasury

Mr Alan SIU,
Principal Assistant Secretary (Treasury) (Revenue)

Miss Vivian SUM,
Assistant Secretary (Treasury) (Revenue)

Customs and Excise Department

Mr Michael CHIK,
Assistant Commissioner of Customs and Excise

Mrs Virginia SZETO,
Senior Superintendent (Acting)

Department of Justice

Ms Sherman CHAN,
Senior Assistant Law Draftsman

Clerk in attendance :

Ms LEUNG Siu-kum,
Chief Assistant Secretary (1)2

Staff in attendance :

Miss Anita HO,
Assistant Legal Adviser 2

Miss Becky YU,
Senior Assistant Secretary (1)3

I Election of Chairman

At the request of members, Mr WONG Siu-yee chaired the meeting for electing the Chairman.

2. Mrs Miriam LAU nominated Mr Ronald ARCULLI as Chairman of the Bills Committee. Messrs LEE Kai-ming and CHAN Wing-chan seconded the nomination. There being no other nominations, Mr WONG Siu-yee declared Mr Ronald ARCULLI Chairman of the Bills Committee. Mr Ronald ARCULLI then took over chairmanship of the meeting.

II Meeting with the Administration

(Provisional Legislative Council Brief ref: FIN SCR 7/2201/97 (Part)

PLC Paper Nos. LS 110 and 104, CB(1) 1074(01) and CP 372)

3. At the invitation of the Chairman, the Deputy Secretary for the Treasury (DS for Tsy) advised that the Dutiable Commodities (Amendment) Bill 1998 mainly sought to give legal effect to the proposals in the 1998-99 Budget to increase the duties of tobacco, fuel and methyl alcohol by 6% which was in line with inflation. He emphasized that the increase was essential in order to maintain the real value of duties and to keep duties as a stable source of revenue. Furthermore, the adjustment also served specific policy objectives which included discouraging smoking through the increase in tobacco duty; controlling the use of private vehicles and encouraging the use of public transport through the increase in petrol duty; maintaining the incentive for users to switch to cleaner fuel in future by preserving the differential between duties on light diesel oil and other cleaner fuel; and deterring the use of methyl alcohol in the production of adulterated liquor through the increase in methyl alcohol duty. DS for Tsy added that the Bill also made ancillary amendments to the Ordinance and its subsidiary legislation to make it clear that a refund of the duty paid on light diesel oil might be granted in respect of the use of the oil by road vehicles operated by a franchised bus company, whether the road vehicles were hired or owned by the company. Members then proceeded to examine the Bill clause by clause.

Clause 1. Short title and commencement

4. No particular comments were made on the clause.

Clause 2. Schedule 1 amended

Part II - Duty on tobacco

5. The Principal Assistant Secretary (Treasury) (Revenue) advised that the total increase in revenue in respect of the rise in tobacco duty would be $165 million of which $162 million were from cigarettes; $2 million from cigars; and $0.2 million for Chinese prepared tobacco and all other manufactured tobacco except tobacco intended for the manufacture of cigarettes. As regards the impact of the increase in tobacco duty, the Assistant Commissioner of Customs and Excise (AC of C&E) acknowledged that there might be a rise in the smuggling of cigarettes after the duty increase and the Administration would strengthen the enforcement actions in notorious black spots.

6. While members had no objection to the increase in tobacco duty, the Chairman remarked that the proposed increase was at variance with the principle of reducing burdens on individuals as laid down in the 1998/99 Budget.

Part III - Duty on hydrocarbon oil

7. Regarding the increase in light diesel oil duty, DS for Tsy acknowledged that there had been public concerns about the need for the increase having regard to its effect on operators and drivers in the taxi, public light bus and truck trades. However, the Administration considered that the increase was essential so as not to widen the differential between the duties on light diesel oil and other cleaner fuel. Otherwise, diesel users would not have the incentive to switch from diesel oil to a cleaner fuel in future. DS for Tsy added that the proposed 6% increase should not have adverse impact on the operators and drivers due to the drop in the retail price of diesel fuel from $7.01 to $6.71 per litre last year. The price after adjustment would be $6.88 per litre which still represented a drop of $0.13 per litre over the past year. The increase in operating cost for taxi would be $6 to $7 per day or $200 per month. For public light bus, a monthly increase of $270 was expected. DS for Tsy also pointed out that the fuel duty rate would be preserved at about 43% of the total fuel price after the increase.

8. Members were not convinced of the use of duty increase to encourage the switch to cleaner fuel. They considered that the Administration should reduce the duty on unleaded petrol or introduce other positive incentives to encourage the switch instead of using a negative measure, i.e. by increasing the duty on diesel oil, to achieve the purpose. Noting that a pilot scheme on Liquefied Petroleum Gas (LPG) Taxi was underway and the Administration's intention was to preserve a differential to encourage the future switch, some members however could not agree to the Administration's assumption that the cleaner fuel, if available in future, would not induce incentives to the switch, hence the need to increase the duty on diesel oil.

9. A member remarked that as it would take five years for all taxis to switch from diesel to LPG even if the scheme was proved to be successful, the proposed increase in duty would not be able to alleviate air pollution as claimed by the Administration. Given the fact that there was a lack of alternatives at present to replace diesel oil in commercial vehicles such as taxis and public light buses, and that the 1998-99 Budget had proposed a number of tax concessions for many sectors of the community, members did not agree that the Administration should target its source of revenue at operators and drivers who used their vehicles to earn their living, in particular when there was a drop in the number of passengers as a result of the recent economic downturn.

10. One member cautioned that the increase in light diesel oil duty would aggravate the use of marked oil as a substitute for diesel oil and would in turn hamper Hong Kong's economy. AC of C&E advised that the use of marked oil had been brought under control consequent upon the stepping up of enforcement action against smuggling activities. He however admitted that it would be difficult to detect the illegal use of light diesel oil since it was hard to ascertain whether duty had been paid for such oil.

11. Concerning the increase in petrol duty, members were not convinced that this should be used as a means to control the use of private vehicles as there was no statistical support for the co-relation between increase in petrol duty and decrease in use of private cars. DS for Tsy however pointed out that the rise in duty would have a direct impact on the running cost of private vehicles which would serve as a deterrent. He reiterated that the Administration's overall objective was to encourage people to use the mass transport system instead of private vehicles in view of the limited road spaces in Hong Kong. Members were of the view that the current traffic problem was mainly due to the poor transport management and the lack of mass transport system in densely populated areas such as Hung Hom. As such, the increase in petrol duty was not a solution to the problem. DS for Tsy remarked that the Administration had committed to improving the mass transport system. To this end, a review on the railway development strategy had recently been launched to ascertain the need for further development of the railway system.

12. Having regard to the fact that the rise in hydrocarbon oil duty would only increase the total revenue by $0.4 billion which was insignificant when compared with the current reserve at more than $10.7 billion and considering the impact of the increase on operators and drivers in the taxi, public light bus and truck trades, members unanimously opposed the proposed increase in hydrocarbon oil duty. The Bills Committee decided to move Committee stage amendments (CSAs) to repeal clauses 2(b)(i)(A) to (D). In view of the technical difficulties in refunding the duty collected since the Public Revenue Protection (Dutiable Commodities) Order 1998 came into effect at 2:30 pm on 18 February 1998, members also agreed to move an amendment to provide that any duty paid under the Order should not be refunded.

Part IV - Duty on methyl alcohol

13. Members considered that as methyl alcohol was used for industrial purpose, the proposed increase in methyl alcohol duty would increase the cost of production which was at variance with the Administration's policy in encouraging industrial development. DS for Tsy reiterated that the increase was necessary on health grounds to maintain the current financial disincentive for the use of methyl alcohol, which was poisonous, in the production of adulterated liquor. Members were not convinced of the Administration's explanation as there was no co-relation between the increase in methyl alcohol and production of adulterated liquor. The Bills Committee decided to move a CSA to delete clause 2(c).

Consequential amendments

Dutiable Commodities (Marking and Colouring of Hydrocarbon Oil) Regulation

14. No particular comments were made on the amendments.

III Any other business

15. As members had completed scrutiny of the Bill, the Chairman advised that a report on the deliberations of the Bills Committee would be submitted for consideration of the House Committee at its meeting on 13 March 1998. Members agreed that the Second Reading debate on the Bill be resumed on 25 March 1998.

16. There being no other business, the meeting ended at 12:00 noon.

Provisional Legislative Council Secretariat
20 May 1998