Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation
Mr CHAN Chun-ying noted from recent news reports that in order to avoid paying the New Residential Stamp Duty (“NRSD”) when purchasing properties, there was an increasing number of cases where residential property owners taking advantage of the prevailing exemption arrangement under the NRSD regime by transferring their property ownership to close relatives before acquiring new residential properties. He enquired if the Administration would consider introducing administrative measures to plug the loophole, such as stipulating that a buyer would only be eligible for NRSD exemption if he/she did not own any other residential property in Hong Kong within a specified period of time.
FS said that the Government was aware of the news reports referred to by members, and remarked that the percentage of residential property buyers paying Buyer’s Stamp Duty and NRSD remained low.
Mr CHAN Chun-ying referred to the motion on “Supporting elderly persons aged between 60 and 64 on all fronts” passed at the Council meeting of 29 May 2019 and enquired if the Administration would consider extending the $2 concessionary transport fare to elderly persons aged between 60 and 64 as a measure to support these persons in taking up employment again.
FS said that there would be practical difficulties to provide the $2 concessionary transport fare only to elderly persons aged between 60 and 64 (“young olds”) who were in employment but not to those who were not. That said, the Administration might consider introducing other measures to motivate young olds to take up employment again.
Enhancing support for Tax Policy Unit
Mr CHAN Chun-ying expressed support for the Administration’s proposal to establish BTPU under FSO.
Noting that the H/BTPU post could be filled by an AOSGB1 or a contract staff through open recruitment from outside the civil service, Mr CHAN Chun-ying enquired about the qualification requirements of the post. He also sought information on when the three vacant posts in BTPU would be filled and the total staff cost of BTPU vis-à-vis the existing TPU. The Chairman opined that it would be advisable to fill the H/BTPU post with an AOSGB1 as he/she would be more familiar with the operations of the Government.
PS(Tsy) advised that having regard to the duties and responsibilities of H/BTPU and the tasks of BTPU, the post was likely to be filled by an AOSGB1 as a start. However, in order to provide flexibility to ensure that BTPU would be led by a suitable person with the requisite knowledge and relevant work experience as the circumstances might warrant, the post could also be filled by a contract staff through open recruitment. The Administration would, having regard to BTPU’s functions and responsibilities, prescribe the relevant qualification and experience requirements of H/BTPU when the open recruitment exercise was conducted. As regards the timing for establishing BTPU, PS(Tsy) said that the Administration’s target was to create the H/BTPU post with effect from 1 July 2019 or upon approval by the Finance Committee (“FC”), whichever was the later, and the Senior Assessor and Senior Personal Secretary posts would be created thereafter. The existing vacant SAO post would be filled by in-service posting. The full annual average staff cost of H/BTPU, including salaries and staff on-cost, was $4,177,000, and that for the two new non-directorate posts was $3,184,000. The total full annual average staff cost of BTPU, including the three existing posts to be transferred from TPU, was about $12 million.
Legislative proposals to further the development of the insurance sector
The proposed profits tax concessions for the insurance sector
Mr CHAN Chun-ying declared that he was a consultant of the Bank of China (Hong Kong) Limited, which engaged in insurance business among other businesses. He expressed support for the Administration’s proposals, and enquired why the proposed profits tax concessions covered selected business of insurance broker companies and the reasons for excluding the five types of risks of domestic nature listed in page 8 of the powerpoint from the proposed tax concessions.
DS(FS)2 explained that insurance broker companies served as professional advisors in seeking the most appropriate insurance solutions in the market for their clients, and providing advice on where the risks should be placed. The proposed tax concessions could lower the operating costs of broker companies and thus would make Hong Kong a more attractive location for placing the risks. On the proposed profits tax concessions, Executive Director (General Business), Insurance Authority (“ED/IA”) said that the purpose was to help develop Hong Kong into an international insurance hub and attract new overseas insurance business to Hong Kong. Given the domestic nature of the five types of risks which accounted for around 75% of the general insurance business of the sector, they were not the targets of the proposal and were excluded from the proposed profits tax concessions.
Expanding the scope of insurable risks by captive insurers set up in Hong Kong
Noting that under the Administration’s proposal, a Hong Kong captive insurer could also insure/reinsure the risks of an unrelated body corporate (i.e. an entity not within the same group of companies to which the captive insurer belonged), Mr CHAN Chun-ying enquired whether a cap would be imposed on captive insurers in underwriting such risks.
DS(FS)2 confirmed that a cap would be set on the level of risks for an unrelated body corporate that a Hong Kong captive insurer could insure/reinsure. The unrelated body corporate had to give full risk management control to the captive insurer in the form of a written contract. The Insurance Authority (“IA”) would issue guidelines on the matter for the insurance industry which would specify, inter alia, the cap concerned.
Legislative framework for group-wide supervision of insurance groups
Noting that only jurisdictions including European countries, Bermuda and Singapore had put in place a regulatory regime for group-wide supervision, Mr CHAN Chun-ying expressed concern that insurance groups might relocate their holding companies to other jurisdictions such as the United States, Canada and Australia if the group-wide supervision regulatory framework in Hong Kong was more stringent than those of other jurisdictions. In respect of the proposed requirement for designated insurance holding companies to seek IA’s approval for their chief executives, directors, key persons in control function or shareholder controllers, he sought information on the procedures and estimated time by IA in ascertaining the fitness and propriety of the persons involved, particularly whether IA would follow the practices of the Hong Kong Monetary Authority in assessing the fitness and propriety of the executive officers of banks. Moreover, as the International Association of Insurance Supervisors had not yet finalized the capital requirements for Internationally Active Insurance Groups, he asked how IA would determine the capital requirements of a designated insurance group.
DS(FS)2 and Executive Director (Long Term Business), Insurance Authority (“ED/IA”) explained that the purpose of the proposals was to enable IA to exercise direct regulatory powers over Hong Kong-incorporated holding companies of insurance groups, so as to uphold the international standards for insurance regulators and reinforce Hong Kong’s status as an international financial centre. It should be noted that the group-wide supervisor was elected by the supervisory college of the insurance group concerned and the proposals would not adversely affect the competitiveness of the insurance industry in Hong Kong.
As regards the assessment of an application for appointment as a chief executive, director, key person in control function or shareholder controller of a designated insurance holding company, ED/IA advised that the factors to be taken into account by IA in ascertaining the fitness and propriety of a person were largely similar to those applicable to an authorized insurer regulated by IA on a “solo” basis. On the capital requirements for a designated insurance holding company, ED/IA said that IA would keep in view the latest development of the relevant international standards and would continue to work closely with the industry in ironing out the details. She added that a transitionlead-in period would be provided to alleviate the financial impact on designated insurance groups.