Following is a question by Dr the Hon Tik Chi-yuen and a written reply by the Acting Secretary for Financial Services and the Treasury, Mr Joseph Chan, in the Legislative Council today (June 25):

Question:

     The Budget for the current fiscal year has proposed to cut recurrent government expenditure by a cumulative seven per cent from 2024-2025 to 2027-2028, and resources for non-profit organisations subsidised by the Government have also been reduced. There are views that the relevant situation has led to severe shortage in social welfare resources, rendering the underprivileged groups always unable to receive appropriate services. In this connection, will the Government inform this Council:

(1) it is learnt that, under the current arrangements, some government-subsidised non-profit organisations are still required to pay taxes (including property tax or profits tax), whether the Government has assessed if such tax burdens may lead to further financial difficulties for such organisations; if the Government has, of the assessment results;

(2) of the total amount of taxes collected by the Government from subsidised non-profit organisations over the past five years, and the types of taxes included;

(3) whether it has examined if the current tax arrangements for non-profit organisations under the Inland Revenue Ordinance (Cap. 112) are appropriate; whether the Government will consider reviewing the relevant legislation to provide non-profit organisations with clearer or further tax exemptions;

(4) apart from the tax relief measures provided under Cap. 112, whether the Government currently has other administrative arrangements in place to alleviate the tax burdens on non-profit organisations (e.g. paying part of their taxes or providing relevant subsidies); if so, of the scope of such arrangements; if not, whether it will consider introducing relevant administrative measures; and

(5) whether the Government will refer to tax concessions or subsidy policies for non-profit organisations in other regions and introduce relevant measures to minimise the tax burdens on non-profit organisations in Hong Kong and enhance their operational efficiency?

Reply:

President,

     To uphold the principles of fiscal prudence, the Government put forward a reinforced fiscal consolidation programme in the 2025-26 Budget. The key is managing expenditure growth, making good use of the Government's fiscal resources, and identifying new revenue resources. The Government's principle is to focus on strictly controlling government expenditure, supplemented by increasing revenue, and minimising the impact to the general public. Hence, in stepping up the efforts of bureaux and departments (B/Ds) in cutting their expenditure under the Productivity Enhancement Programme (PEP), the Government's premises are to maintain the efficiency of public services and that the Comprehensive Social Security Assistance, Social Security Allowance and statutory expenditure will not be affected. All B/Ds have been provided with the flexibility to, on the basis of optimising the use of public funds, rationalise their resources according to their work priorities and provide services to the public in a more cost-effective manner.

     Regarding the question raised by Dr the Hon Tik Chi-yuen, having consulted the Inland Revenue Department (IRD) and relevant bureaux, our consolidated reply is as follows:

     Under the Inland Revenue Ordinance (Cap. 112) (IRO), persons, including corporations, partnerships, trustees and bodies of persons, carrying on any business in Hong Kong are chargeable to profits tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such business. Besides, property owners who received rent from leasing out their properties in Hong Kong are subject to property tax. Any organisation having such profits or rents in a year of assessment is required to pay tax in accordance with the IRO. Whether the organisation has received Government subventions is not a factor for IRD to consider when imposing taxes.

     Under section 88 of the IRO, charitable institutions and trusts of a public character (i.e. charities) are exempt from profits tax subject to the fulfilment of certain conditions in relation to the trade or business carried on by them. However, the IRO does not accord full tax exemption to charities. For example, if property letting or hostel operation forms part of the charity's business and such business is not exercised in the course of the actual carrying out of the expressed objects of the relevant charity, or the work in connection with the trade or business is not mainly carried on by persons for whose benefit the charity is established, the profits derived shall be subject to profits tax. In addition, a non-profit-making organisation is not necessarily a charity and there is no provision in the IRO which exempts a non-profit-making organisation from tax. IRD does not maintain statistical breakdown of tax collected from subvented non-profit-making organisations.

     B/Ds engage non-governmental organisations (NGOs) from time to time to provide public services to meet their policy objectives. B/Ds may decide on the nature of organisation to be engaged, which may include commercial institutions, non-profit-making organisations or charities, according to their policy considerations and needs, and decide on the mode or criteria for the provision of resources to these NGOs.

     For example, the Social Welfare Department (SWD) will provide subvention to NGOs to operate different types of social services. To support these subvented organisations in implementing the PEP, the Government has already introduced a series of support measures, which include alleviating some of the financial burden on NGOs, increasing NGO's flexibility in utilising Lump Sum Grant Reserve, refining Funding and Service Agreements, and implementing various arrangements to reduce NGOs' administrative workload, etc. At the same time, the SWD has exempted 18 welfare programmes from expenditure reductions to avoid affecting the underprivileged and to mitigate the impact on service operators.

     B/Ds will keep in view the financial situation of their relevant NGOs in the delivery of services and provide advice or support when necessary.

Ends/Wednesday, June 25, 2025
Issued at HKT 11:25

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