Speech at Panel on Financial Affairs

Briefing by the Financial Secretary on Hong Kong’s latest overall economic situation and the 2020-2021 Budget consultation

Measures to promote economic development

Mr CHAN Chun-ying noted that many countries had issued advice on travelling to Hong Kong in view of the recent social incidents. He enquired how the Administration would rebuild Hong Kong’s image so as to attract tourists and businesses back to Hong Kong and to sustain Hong Kong’s economic growth and maintain its status as an international financial and business centre. He suggested that the Administration should consider increasing the investment in the Long Term Growth Portfolio to enhance diversification of investment of the Exchange Fund.

FS said that the continuous protests and conflicts in the society, with many of them turning violent, had caused many countries to worry about the deterioration of the law-and-order situation in Hong Kong. The Government would strive to stop the violence and chaos, and expeditiously restore public order with a view to stabilizing and improving the business environment in Hong Kong. Once peace and order were restored, the Government would, in collaboration with relevant organizations, chambers of commerce and professional bodies etc., devote efforts and resources to promote Hong Kong and launch other measures to rebuild international confidence in Hong Kong. Meanwhile, an inter-departmental task force had been set up to prepare for the carrying out of promotional works to rebuild Hong Kong’s image as a safe cosmopolitan city. The Government would assure overseas and Mainland stakeholders that Hong Kong’s core advantages remain unchanged so as to restore confidence in Hong Kong.

Measures to support enterprises and relieve people’s burden

Mr CHAN Chun-ying welcomed the helping measures, such as the one-off electricity charges subsidy, introduced by the Administration in recent months to help ease the financial pressure on the public, and enquired if the Administration would consider introducing more helping measures targeting the grassroots and the needy.

FS advised that the Government had introduced various relief measures targeting needy families in the past, such as providing a one-off extra allowance for social security recipients and paying one month’s rent for lower income tenants living in the public rental units of the Hong Kong Housing Authority and the Hong Kong Housing Society.

Budget related issues

In response to Mr CHAN Chun-ying’s enquiry about whether the Administration would consider increasing the rate of betting duty and introducing new tax items, particularly indirect tax like sales tax, in the coming Budget, FS said that the Government was aware of concerns about Hong Kong’s narrow tax base. In considering whether to introduce sales tax or increase the rate of betting duty, the Government would examine the pros and cons very carefully and the most opportune time for proposing such a move. For instance, increasing the rate of betting duty might increase illegal betting activities.


Enhancement and relocation of information technology systems and facilities of the Inland Revenue Department

Utilization of cloud services and digitalization of tax administration

Mr CHAN Chun-ying expressed support for the funding proposal to relocate and enhance IRD’s IT systems in order to streamline the e-filing processes of tax returns and transactions for over 1.8 million taxpayers and to improve the work efficiency of the department. He opined that IRD should consider taking this opportunity to strengthen interdepartmental communication and provision of information to enhance the overall work efficiency. Mr CHAN enquired whether IRD’s new IT systems would be linked to those of other Bureaux/Departments (“B/Ds”) so as to facilitate data sharing and IRD’s verification of information in the tax returns. Noting that an increasing number of B/Ds were adopting the Government Cloud Infrastructure Services (“GCIS”) to accommodate their IT systems, he asked if IRD’s cloud facilities would be segregated from the cloud facilities maintained by other B/Ds to ensure the security of sensitive data stored in IRD’s cloud facilities.

DS(Tsy)2 advised that the Administration recognized that the tax returns submitted by individuals and corporates contained sensitive information which should be duly protected. All personal data submitted to IRD on paper or electronic form was and would continue to be handled in accordance with the secrecy provision under the Inland Revenue Ordinance (Cap. 112). Such data was collected for the sole purpose of assessment and collection of taxes, and would not be shared with other B/Ds.

Deputy Commissioner (Operations) of Inland Revenue Department (“DCIR(O)”) and Chief Systems Manager (Inland Revenue) (Acting) of Inland Revenue Department (“CSM(IR)(Atg)”) added that while IRD would adopt GCIS for storing the personal data contained in tax returns and related documents, such data would be encrypted to ensure the compliance with the relevant legal requirements for the protection of tax secrecy. IRD’s systems and data were independent of those maintained by other B/Ds in GCIS.

Effective use of public resources

Mr CHAN Chun-ying enquired about IRD’s measures to ensure a smooth relocation of IT facilities to the new IR Tower including data migration, and whether the estimates for the contingency item in the funding proposal would cover the expenditure for unexpected problems that might arise from the relocation and data migration. Moreover, as the relocation would involve a large number of hardware equipment and data migration to cloud services, Mr CHAN was concerned whether the budget of $38.348 million on cloud services would be sufficient.

CSM(IR)(Atg) advised that IRD would conduct various tests on the new IT systems and facilities and invite users to participate in trials of the new systems and data migration rehearsal. Moreover, personal data currently held by IRD would be encrypted for data migration to the new IT systems in the new IR Tower. The latter would also be connected to the existing IT systems during system migration to GCIS as part of the contingency plan so that members of the public and IRD staff would be redirected to the existing systems should any problem arise.


Proposal to establish a limited partnership regime for funds (LC Paper No. CB(1)175/19-20(06) — Administration’s paper

Benefits of the proposed limited partnership regime for funds and implementation details

Mr CHAN Chun-ying expressed support for introducing the LPF regime, which could sharpen Hong Kong’s competitive edge on asset and wealth management. Pointing out that pending the election of the Chairman and Deputy Chairman of the House Committee for the 2019-2020 session, the Committee currently could not consider matters relating to whether to form any Bills Committees, he was concerned that the Administration’s legislative timetable to introduce the bill on the LPF regime in the first half of the 2019-2020 session was over optimistic. He sought the Administration’s views regarding the opportune time for introduction of the bill so as to enable Hong Kong to enjoy the benefits of the LPF regime taking into account latest international developments. Mr CHAN Kin-por enquired about the benefits of introducing the LPF regime to Hong Kong.

DS(FS)1 pointed out that the proposal could help Hong Kong grasp the opportunity of potential shifting of fund structures and activities from offshore to onshore as a result of the global implementation of the Base Erosion and Profit Shifting (“BEPS”) package of the Organisation for Economic Co-operation and Development (“OECD”). The BESP package required taxation to happen where asset management activities took place, and its implementation should incentivize the funds to align their structures with business activities. The proposed LPF regime would attract more investment funds to set up in Hong Kong, and in turn increase the demand for local professionals including lawyers, accountants, auditors and investment managers, and would benefit Hong Kong’s financial services industry in the long run. On the legislative timetable, DS(FS)1 said that it was the Administration’s plan to introduce the relevant bill into LegCo in the first half of the 2019-2020 legislative session. While the passage of the bill would be subject to scrutiny progress by LegCo, with OECD pressing ahead with the implementation of the BEPS package, it would be beneficial for Hong Kong to put in place the LPF regime as soon as possible.


The Government’s initiatives to promote the development of the insurance industry in Hong Kong

Financial arrangements of and the proposed additional funding for the Insurance Authority

Given that IA would experience a funding shortfall in 2020-2021, Mr CHAN Chun-ying was concerned whether IA would suffer from a persistent operating deficit in the foreseeable future, and whether IA could achieve the ultimate goal of becoming financially independent from the Government. He further enquired whether IA would review its financial arrangements including the need to adjust its current levy rate on insurance premiums to enable it to achieve financial independence as soon as possible.