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Following is the speech by the Secretary for the Treasury, Miss Denise Yue, in moving the resolution on the Dutiable Commodities Ordinance in the Legislative Council today (June 20):

President,

I move that the resolution as set out in the agenda be approved. The resolution seeks to extend the existing concessionary duty rate on ultra-low sulphur diesel (ULSD) of $1.11 per litre for another nine months, i.e. from 1 July 2001 to 31 March 2002.

Under the existing Dutiable Commodities Ordinance, the duty rate on regular motor diesel is $2.89 per litre and that on ULSD will be adjusted from the existing $1.11 per litre to $2.00 per litre with effect from 1 July this year. The ULSD duty rate so adjusted will remain a concessionary duty rate, as it will still be lower than the duty rate on regular diesel by $0.89 per litre. Nevertheless, the transport sector is concerned that the duty rate adjustment by $0.89 per litre will drive up the retail price of diesel, and hence impose an unbearable burden on the industry. Having considered their views, the Government has decided to further defer the adjustment of the duty rate on ULSD. We have taken this decision in the light of both the likely effect of the recent slowdown in our overall economic growth forecast on the transport and related sectors, and the Government's current overall fiscal position.

President, I believe Members will recall that Government has made a series of concessions on diesel duty for different reasons in the past three years. The duty rate on regular diesel was $2.89 per litre before June 1998. In June 1998, the duty rate on regular diesel was reduced by 30%, from $2.89 per litre to $2 per litre, as a measure to provide economic relief for the transport sector during the Asian financial crisis. In July last year, to tie in with the introduction of ULSD, we provided further duty concession by lowering the tax rate to $1.11 per litre, so as to facilitate a switch to the cleaner ULSD, on environmental grounds. This duty rate was scheduled for revision to $2 per litre on 1 January this year and then to $2.89 per litre on 1 January next year. In December last year, the Government postponed the adjustment of the duty rate to $2 per litre by six months till 30 June this year, again as a special relief measure for the transport sector. The above relief measures have cost the Government a total of $2.7 billion in recurrent revenue.

We estimate that the extension of the existing duty rate on ULSD for another nine months will result in a revenue loss of $680 million for 2001-02, thereby increasing the projected deficit for 2001-02 from $3 billion to $3.7 billion.

I would like to point out that since ULSD has now completely replaced regular diesel as fuel for diesel vehicles in Hong Kong and filling stations are no longer selling regular motor diesel, from the sheer environmental protection perspective, the Government considers there is no longer any need to continue using duty concession as a means of encouraging the supply of ULSD by oil companies and encouraging its use by the transport sector. In other words, the existing duty differential of $1.78 per litre between ULSD and regular diesel has become entirely a special economic measure for the transport sector. As such, any reviews on the ULSD duty rate in future will mainly be conducted having regard to the overall fiscal position of the Government, the economic environment and the state of the transport sector. It is worth noting that the duty on ULSD is an important source of recurrent revenue for the Government, and we estimate that we will have to face with successive operating deficits from 1998-99 to 2004-05. We will announce the appropriate duty rate of ULSD in the context of the 2002-03 Budget. Pending this announcement by the Financial Secretary, the duty rate on ULSD effective on 1 April 2002 will remain at $2.89 per litre, which is equivalent to the existing duty rate on regular motor diesel.

President, I believe that the majority of Members will support this resolution moved by the Government. Thank you.

End/Wednesday, June 20, 2001

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