The Commissioner of Inland Revenue has announced that Hong Kong's total tax revenue for the year ended 31 March 2004 was $106.2 billion, a 14% increase from the $93.14 billion for the year ended 31 March 2003. Two of the main contributors were Profits Tax and Salaries Tax. The Profits Tax revenues of $48.77 billion show a 26% increase over the Profits Tax collection of $38.8 billion for the previous year, reflecting the effect of the revival of the economy since the second half of 2003.

However, Salaries Tax revenue fell 6% to $27.98 billion, compared with $29.73 billion for the previous year. These figures indicate that employees are not yet feeling the full benefit of the economic recovery. These are still difficult times for employees and economic adjustments mean that some employees still face uncertainty regarding their employment prospects.

Hong Kong's ever closer ties with China has meant an increase in the number of Hong Kong residents who go to work in China on short or long term secondments. Such employees can face a significant increase in their overall tax liabilities due to the interaction of, and differences in, the Hong Kong and Mainland China tax systems. The use of tax equalisation programmes can be effective in ensuring that such employees are not unduly disadvantaged during these secondments.

The Tax Authorities in China have recognised that many expatriates have not fully complied with the Individual Income Tax Laws in China and have offered a tax amnesty up to 30 June 2004 to enable expatriates (including Hong Kong residents) to bring their tax affairs up to date and to pay outstanding taxes without undue penalties.

It is recognised that there are problems with tax delinquency in Hong Kong and the introduction of a similar limited tax amnesty in Hong Kong could provide a one time increase in tax revenues, whilst enabling taxpayers to bring their tax affairs up to date, without undue penalties.

The Hong Kong Government has established a committee to review the introduction of a Goods and Services Tax (GST), which is due to report at the end of 2004. Representatives of the International Monetary Fund have recently visited Hong Kong to both canvass views on the introduction of GST and to advise the Government on implementation.

Finally, a reminder to our clients to ensure that their tax returns are filed on time if they wish to avoid penalties. A full list of the filing deadlines is set out in our Tax Notes Issue 11.