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Following is a speech (English only) by the Financial Secretary, Mr Donald Tsang, at the Annual Luncheon of the Board of Review (Inland Revenue) today (Friday):

Mr Chairman, ladies and gentlemen,

Thank you for inviting me to speak today. This function provides an excellent opportunity for all Board members and government officials to meet over lunch to share experiences about the Board's work. You know, it used to be said that only three things in life were certain: Birth, Death and Taxes. But given the economic troubles we are facing, I am not so sure we can include taxes anymore.

Every one of us in Hong Kong is concerned about the economy. And as Financial Secretary I probably think about it more often than most. In fact, it is my duty and responsibility to do so. In that regard, I have to consider any and every idea which may help our economic recovery. Of course, taxation is one area which I and my colleagues have been looking at.

At the end of last year, when I was preparing the 1998-99 Budget, we were facing a great deal of uncertainty for the 1998 economic outlook. My main objective then - as it remains now - was to help the community ride out the storm and to renew Hong Kong's distinctive strengths. One way I tried to help was by reducing the tax burdens for individuals and families. I also announced a drop in corporate profits tax as well as a number of improvements to the profits tax system to enhance competitiveness. These measures were designed to maintain Hong Kong as a premier international business and financial centre - not just in the region but also on the world stage.

As a result, the package of revenue proposals in the Budget will reduce our coffers by $13.6 billion in 1998-99 and by nearly $100 billion up to 2001-02. The Budget package also provided for extensive expenditure on infrastructure to stimulate economic growth. I did not expect the Budget to lift Hong Kong out of economic troubles overnight. But I had hoped it would relieve the tax burden on many, and revive the spirits of most.

By June this year it was apparent that the economy was not improving and that the economic storm was far more severe and prolonged than we had anticipated. Confidence levels continued to fall and there were calls for the government to do more to help the community ride out the turmoil. In response, on June 22 the Chief Executive announced a package of special relief measures which were designed to provide more relief to the community, increase confidence and further enhance Hong Kong's competitiveness. I am sure the special relief measures, coupled with the Budget initiatives, will start to have the intended positive effect in the not too near distant future.

In August we took exceptional action during an exceptional time to restore order and a level playing field to our stock and money markets. Those actions were taken, first and foremost, to protect our linked exchange rate. Since then, the markets have been relatively stable - although they continue to go up and down, as markets do. But the manipulators who sought to wreak havoc by attacking our currency seem to be staying away - and I hope they stay away. The arguments for and against our incursion have been well aired but there is one thing I would like you all to consider and that is we not only have a policy to maintain Hong Kong as an international financial centre - it is actually our constitutional duty under the Basic Law.

While we have been doing what we can to relieve the tax burdens on individuals and business, we are in no way relaxing our enforcement on the tax collection front.

To encourage prompt payment of tax, we have strengthened publicity to encourage voluntary compliance. On the penalty side, in addition to imposing a 5 per cent surcharge on overdue tax, we are now strictly enforcing the imposition of 10 per cent surcharge on tax debts overdue for more than six months. This will hopefully discourage delays in tax payment.

As always, we have been very vigilant about tax evasion and avoidance. In 1997-98, the Inland Revenue Department assessed $2.128 billion in back taxes and penalties after investigation and field audits in that year. We will step up our effort in this area. We have secured resources for the creation of an additional field audit team next year, bringing to 10 the total of field audit teams in the IRD. We expect the additional team to handle about 100 more cases and recover about $100 million a year in taxes and penalties.

I know that the Board has also been working hard. In particular, I note the significant increase in the number of new appeals. In 1997-98, the Board received 255 appeals - an average of 21 per month. In the first six months of 1998-99, the Board received 169 new appeals - an average of 28 per month. This increase reflects the growing awareness of taxpayers of this statutory appeal channel for determining tax liabilities.

The increase in cases has no doubt meant more work for all of you. But your efforts speak for themselves - indeed, the Board has not only effectively dealt with an increase in new appeals, it has also managed to reduce the backlog of appeals. The average waiting time for an appeal to be heard has dropped from six months to within four months. Now that's a productivity gain to be proud of. These are all excellent results, and clearly indicate the dedication and efforts of all serving on the Board. On behalf of the Administration, I would like to express my sincere thanks for your devotion and valuable contributions which are essential in maintaining a fair taxation system in Hong Kong.

I remember that the use of Chinese to hear cases was one initiative taken by Ronny when he took over chairmanship in 1996. I am glad to learn the Board is making good progress in this respect. At present, around 30 per cent of hearings are conducted in Chinese. The use of Chinese expedites the hearing of cases and enables appellants to better understand the proceedings. No doubt this measure has been welcomed by appellants. I also note that on the suggestion of the Chairman, we have now contracted out to junior barristers the preparation of headnotes for concluded appeal cases in order to relieve the workload of presiding chairmen. I hope this will expedite the publication of the Board's decisions which are useful documents for taxation and legal practitioners.

I notice there has also been some changes in Board membership. It was a great pity to hear of the resignation of one of the Deputy Chairmen, Christopher Chan. Christopher was a very devoted Deputy Chairman and made many valuable contributions to the Board. On the other hand, I am very pleased he has assumed the office of a District Court Judge and I wish him all the best in his new position. I would also like to take the opportunity to welcome Herbert Tsoi, a recent member of the Board of Inland Revenue. I hope he will enjoy his new role in the years to come. Since the last Annual Luncheon, a total of 27 new members have been appointed to the Board. I know they will be a helpful reinforcement in coping with the increasing caseload. Some new members are from other professional bodies and I am sure they will give a new impetus to the Board's work.

Finally, there is a saying that a good speech should be like a woman's skirt - long enough to cover the subject but short enough to be interesting. I hope I have adhered to those two points today.

Thank you very much.

End/Friday, November 6, 1998

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