Taxation and Economic Development among Pacific Asian Countries

By Richard A. Musgrave; Ching-Huei Chang et al. | Go to book overview

8
Effective Corporate
Tax Rates on Capital Income
in Hong Kong

H.C.Y. Ho


1. Introduction

Hong Kong is often referred to as the last bastion of laissez-faire. 1 The pronounced policy of its government is one of "positive nonintervention." Tax rates are kept low and tax structures, simple. However, this general impression is very misleading and "the truth is that it [the government] acts and intervenes a great deal." 2 In the case of corporation profits tax, there are provisions in the tax laws that have nonneutral effects on investment decisions. The purpose of this chapter is to examine these provisions by making some estimates of effective corporate tax rates on certain types of capital income.


2. Corporation Profits Tax in Hong Kong

The corporation profits tax system in Hong Kong can be described as a classical system. Companies pay a flat rate on their taxable profits. However, there are no taxes on dividends or capital gains, even at the personal level. At present, the tax is charged at 16.5 percent. Because Hong Kong adopts the territorial-source principle of taxation, the tax is restricted to profits arising in or derived from Hong Kong. As in other countries, the tax base is not pure economic profit but accounting profit adjusted in accordance with the provisions of the tax laws. For the purpose of this chapter, the relevant provisions are those related to deductions for depreciation and interest payments and valuation of inventory. To compute taxable profits in Hong Kong, depreciation is based on historical cost and inventory is valued at cost or market value, whichever is lower, thus increasing taxable profits in times of inflation. This effect is countered by

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Taxation and Economic Development among Pacific Asian Countries
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • 1 - Introduction 1
  • Notes 10
  • 2 - Indonesian Tax Reform, 1985-1990 11
  • Notes 41
  • References 42
  • 3 - The Tax System and Economic Development in Japan 44
  • Notes 61
  • References 62
  • 4 - Tax Reform in the Philippines 64
  • Notes 80
  • 5 - Tax Reform in Malaysia: Trends and Options 82
  • Notes 100
  • References 101
  • 6 - Property Taxation as a National Policy Tool in Taiwan 104
  • Notes 116
  • References 116
  • Notes 137
  • References 138
  • 8 - Effective Corporate Tax Rates on Capital Income in Hong Kong 140
  • Notes 153
  • 9 - Tax Policy and Business Investment: Taiwan's Manufacturing Industry 156
  • Notes 165
  • References 167
  • 10 - The International Dimension of Korean Tax Policy 168
  • Notes 191
  • References 192
  • 11 - Tax Incentives for Export Promotion in Japan, 1953-1964 194
  • Notes 207
  • References 208
  • 12 - International Aspects of Income Taxation in Taiwan 210
  • Notes 221
  • References 223
  • 13 - Financing Social Security in Singapore Through the Central Provident Fund 225
  • Notes 255
  • References 255
  • 14 - A New Role for Fiscal Policy and Tax Finance in Korea 259
  • Notes 275
  • References 276
  • About the Book 280
  • About the Editors and Contributors 281
  • Index 283
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