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Following is the transcript (English portion) of the question and answer session at the press conference on the 2000/01 Budget held by the Financial Secretary, Mr Donald Tsang, today (Wednesday).
Question (RTHK): Referring to paragraphs 78 and 202 in your speech, some people would say it won't matter how many hundreds of corporate headquarters you have in Hong Kong if the profits made by those companies are someplace in cyberspace and untouchable by a territorially based tax policy. How great a threat do you see e-commerce in the ability to get those taxes back from those profits? How great a threat is that realistically and what can you do about it?
FS: I have spent some passages in the speech discussing this very issue. The incoming of a large number of the large multinationals establishing their headquarters in Hong Kong will definitely create economic activities in Hong Kong - provide jobs and do all sorts of things which are beneficial to the economy. As far as profits tax is concerned, there is of course always, always a problem, which I mention here, because of globalization, that we need to deal with, not necessarily because of the incoming companies - in fact with existing companies going on to cyberspace. That is the reason why I have asked Miss Yue to look critically at this question; whether the threat is real, whether we do have a structural problem as a result of the seepage of our revenue coming from the traditional sources. And that is also the reason why I am now setting up a new committee to look at new sources of revenue, particularly broad based ones, which are in addition to what we have.
Question (follow up): When you say you are looking into the seriousness - if I can just follow up - you said in paragraph 202: "The greatest uncertainty stems from the likely exponential growth". So obviously, you see it as something more than just a seepage.
FS: Well, let's see what it is. What I am saying is, we have got a problem. The problem is going to confront not only Hong Kong but all service economies. Which is going to be a matter of great importance to the way in which various governments are going to derive this revenue. But we are taking it positively. I am look at it, as I said, as a two-pronged approach. How and the degree in which it is going to impact on our revenue source remains to be seen but I am confident that in the near term it is not an issue as far as the year 2000 is concerned. But I am hoping that by the time I deliver - or whoever is going to deliver - the next budget speech, we are going to embrace the recommendations coming from Miss Yue's task force and the new committee.
Question: Mr Tsang, you have mentioned the current tax base being kind of narrow, so does that mean that you are still considering a profits tax or a sales tax eventually? And then plus when do you expect recommendations from the committee on how to widen the tax base?
FS: Yes, the narrow tax base has been one of my major concerns, and for that reason, as you know, we have set up one task force to be led by Miss Yue here, to look at the tax base, the structural issue, and whether or not we need to have some radical changes to our existing tax items - like profits tax, like salaries tax, like rates. Particularly in the case of profits tax there is a question of territorial tax principle, which applies to Hong Kong's tax system at the moment - whether that needs to be changed, because many countries have adopted what they call a global tax system. But whatever we do, please, please accept my assurance which I made in the speech, that Hong Kong is a low tax territory. That has been defined in our Basic Law. Whatever we do, Hong Kong's tax system must be internationally competitive. It must be low, it must be simple. But as far as when are we going to implement these changes, it depends on how our economy would fare and how quickly various recommendations would come forth from Miss Yue's task force and the committee which I have set up to look at additional broad based tax proposals, including one would say, consumption related tax.
Financial Secretary's transcript (Chinese part)
End/Wednesday, March 08, 2000
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