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Following is the speech by the Secretary for the Treasury Miss Denise Yue, in moving the second reading of the Tax Reserve Certificates (Amendment) Bill 1999 in the Legislative Council today (Wednesday):

President,

I move that the Tax Reserve Certificates (Amendment) Bill 1999 be read the second time.

Tax reserve certificates, or TRCs, are issued by the Inland Revenue Department for tax payment purposes. There are two kinds of TRCs, namely normal TRCs which are purchased by taxpayers for tax payment in future, and conditional TRCs which the Commissioner of Inland Revenue requires taxpayers who have objected to their tax assessments to purchase in order to cover the total amount or part of the tax in dispute.

We have recently reviewed the TRC system and identified two proposals which aim at making the system more attractive to taxpayers as an alternative means to save for tax payment and a more equitable system.

The first proposal is to abolish the issue of paper certificates for normal TRCs and replace them by scripless ones. At present, the scripless TRC scheme, which is restricted to civil servants and civil service pensioners, allows participants to purchase TRCs of fixed value on a monthly basis. Instead of issuing paper certificates, we maintain individual accounts for these participants with the evidence of purchase reflected as entries in the accounts. The system has worked well. We have been making arrangements to enhance this scripless feature by establishing electronic accounts which can be directly credited by banks and the Payment-by-Phone system. This will enable TRC purchases to be made at any time.

For other purchasers of normal TRCs, we now only issue paper certificates to them. The issue and redemption of these paper TRCs are resource-intensive and not user-friendly. As most of the normal TRCs buyers are regular buyers and with the enhancement of the scripless scheme which will become more flexible, we propose to abolish the issue of paper certificates for normal TRCs and replace them by scripless TRCs. All normal TRC purchasers will be given an account instead of paper certificates for the record of all transactions. The abolition of the issue of paper certificates for normal TRCs will result in minor staff savings which will be redeployed to improve the quality and efficiency of service.

The second proposal included in the Amendment Bill is to calculate TRC interest for conditional TRCs by using the moving interest rates fixed under the Ordinance. At present, the interest rate applicable at the time when a TRC is purchased is valid for the entire interest-earning period of the TRC. The fixed-rate mechanism is rather restrictive for taxpayers who are required to buy conditional TRCs as they do not have any flexibility on when they have to make the purchase. As the holding period of conditional TRCs may vary significantly depending on the time taken to conclude the objection or appeal cases concerned, the applicable interest rate may apply for a long period of time until the cases are concluded, irrespective of the prevailing TRC interest rate. This is unfair to both the Government and the taxpayer. We therefore propose to improve the situation by calculating the interest on conditional TRCs on the basis of the interest rate in force from time to time for the tenure of the TRCs. This will mean that every time when the TRC interest rate is reviewed and changed, it will apply to all conditional TRCs issued.

The two proposals I have just explained will only apply to TRCs purchased on or after the passage and commencement of the amendments by this Council.

With these remarks, President, I commend the bill to Members.

Thank you.

End/Wednesday, May 19, 1999

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