Speech at Panel on Financial Affairs

Review of rating system

Mr CHAN Chun-ying supported the Administration’s proposals to introduce a progressive element to the rating system and implement a new rates concession mechanism as the proposals could better reflect the “affordable users pay” principle and ensure fairness when providing rates concession.

The proposed progressive rates regime

Mr CHAN Chun-ying noted that the implementation of the proposed progressive rates regime would entail fundamental changes to the core computer systems of the Rating and Valuation Department (“RVD”), and pointed out that the number of objection cases to the assessed ratable value of domestic properties might increase, in particular when the rateable value of a tenement marginally exceeded a particular specified threshold under the proposal where a higher rates percentage charge would be applied. Mr CHAN Chun-ying sought the Administration’s assessment on the estimated costs for implementing the proposed progressive rates regime and the new rates concession mechanism.

The Administration advised that the implementation of the proposed progressive rates regime and new rates concession mechanism would involve a one-off expenditure of about $250 million and an annual recurrent expenditure of about $16 million. The expenditure was mainly for strengthening the manpower for undertaking preparatory work and implementing the two proposals, as well as developing new and enhancing existing computer systems of RVD which was envisaged to take some 30 months to complete. Regarding objections to the rateable values of properties, the Administration said that under the present mechanism, ratepayers could raise objection to the rateable values by submitting “proposals” to RVD in a specified form from March to May of the year following a general revaluation of the rateable values of properties. RVD would review the assessments and notify the ratepayers concerned of the results by November of the year. If a ratepayer was unsatisfied with RVD’s review decision, he/she might lodge an appeal with the Lands Tribunal.

The rates concession mechanism

Mr CHAN Chun-ying pointed out that some people held more than one domestic property for meeting different needs (such as one for self-use and another for use by family members), and asked if the Administration would consider allowing an owner to enjoy rates concession for more than one domestic property in such situations. Mr CHAN Chun-ying on the other hand was of the view that the Administration should consider applying higher rates percentage charge(s) (i.e. a progressive rating scale) to owners holding more than one domestic property.

The Administration responded that rates concession was implemented on an equal-footing basis. The proposed new rates concession mechanism was consistent with the “affordable users pay” principle by limiting the provision of rates concession to one tenement to be elected by an eligible owner including elderly people, and the Government’s objective of targeting the concessionary measure at those most in need while maintaining a simple rating system that was easy to administer. Providing rates concession to multiple domestic property owners and rates exemption to elderly owner-occupiers would complicate the rates concession mechanism. For instance, relevant property owners would need to report and constantly update RVD on the occupation status of their domestic properties, and there would be increased administrative burden for RVD arising from declaration and verification of owners’ information, compliance checks, and enforcement actions, etc. The Administration added that with the implementation of the new rates concession measures, it was expected that about 70% of domestic ratepayers would be eligible for applying for rates concession for their elected domestic property.

In response to members’ enquiry about provision of rates concession for co-owned domestic properties, the Administration explained that under the proposed new rates concession mechanism, rates concession in respect of a domestic tenement would only be granted on election by a natural person. Eligible co-owners could make their own arrangement for one of them to apply for rates concession in respect of the co-owned property. If one of the co-owners had applied for rates concession in respect of the co-owned property, the other co-owner(s) could still apply for rates concession in respect of his/her other domestic tenement so long as he/she fulfilled the eligibility criteria.

Preparation for the commencement of the new regulatory regime of accounting profession

Establishment of the Advisory Committee

Mr CHAN Chun-ying enquired about the composition of the Advisory Committee to be established including the anticipated proportion of practitioners to lay persons and whether there would be representatives from the Hong Kong Institute of Certified Public Accountants (“HKICPA”); and whether the Advisory Committee would offer advice to AFRC in a timely manner on areas including promoting the development of the accounting profession and avoiding over-regulation of the profession.

The Administration responded that the Advisory Committee would advise on policy matters concerning AFRC’s regulatory objectives and functions. On the composition of the Advisory Committee, apart from the Chairman, the Chief Executive Officer and not more than two executive directors of AFRC, there would be eight to 12 other members to be appointed by the Financial Secretary in consultation with AFRC. Such members would include practitioners, relevant service users and other stakeholders.

Transitional arrangements of the new regulatory regime

On enquiry about whether there would be deadlines (say one to two years) set under the transitional arrangements to the new regime before which HKICPA must complete all ongoing practice reviews, and investigation and disciplinary cases, the Administration replied in the negative and pointed out that HKICPA had to be provided with flexibility in the relevant work taking into consideration the unique circumstances of individual cases.

Staff recruitment for the commencement of the new regulatory regime

Mr CHAN Chun-ying asked how AFRC would recruit new staff (including suitable staff of HKICPA) for carrying out functions under the new regulatory regime. The Administration said that AFRC planned to recruit new staff in 2022-2023 for the phasing-in of the new regime. HKICPA’s existing staff of suitable caliber and with experience on the functions to be transferred to AFRC would also be considered for recruitment.

Proposed tax concession for family offices

Competitiveness of the tax concession proposal

Mr CHAN Chun-ying expressed concern about the competitiveness of the proposal. Noting from surveys that in 2020 some 50 family offices were licensed by SFC, while there were over 400 family offices established in Singapore, these members questioned whether the tax proposal could have sufficient incentives to attract more family offices to set up in or relocate to Hong Kong. There were views that the Administration should consider relaxing certain requirements of the proposal to increase its attractiveness. For example, relaxing the substantial activities requirements on FIHVs, such as the requirement for employment of fulltime employees; providing permanent resident status for members of the family offices established in Hong Kong; as well as exempting licensing requirement for SFOs/FIHVs and providing subsidies to them.

On the efforts to promote the establishment of family offices in Hong Kong, the Administration said that the current tax concession proposal, and the on-going measures implemented by Invest Hong Kong (“InvestHK”) (e.g. establishing a dedicated team to provide one-stop services for family offices), were among the multi-pronged strategy of the Government to enhance Hong Kong’s competitiveness as a family office hub and attract more family offices to set up and operate in Hong Kong, which would be vital in promoting the growth of asset and wealth management businesses. In developing the tax proposal, the Administration was mindful of the need to strike a proper balance of various policy objectives including attracting more family offices to set up in Hong Kong, bringing businesses to the financial and related professional services sectors in Hong Kong, and aligning with international tax standards. Under the current proposal, FIHVs could be exempted from tax in respect of their assessable profits earned from any qualifying transactions and incidental transactions (subject to the 5% threshold). The Administration would continue to consider other facilitative measures for family office business in Hong Kong having regard to the latest development in Hong Kong and other overseas jurisdictions.

Benefits of the tax proposal for Hong Kong

Mr CHAN Chun-ying asked whether the Administration would set a short-term target on the number of new SFOs to be established in Hong Kong after the implementation of the tax proposal noting that there were only some 50 local family offices established Hong Kong in 2020.

The Administration pointed out that the 50 family offices referred to by members only covered those family offices licensed by SFC for conducting regulated asset management activities. As SFOs established in Hong Kong were generally not required to obtain a licence from SFC, the figure did not represent the actual number of SFOs set up in Hong Kong. To better understand the growth in the number of family offices and the effectiveness of the tax concession proposal, the Administration considered that the Asset and Wealth Management Activities Survey conducted by SFC would be a useful reference. In the 2020 Survey, there was a 46% year-on-year increase in Hong Kong’s private banking and private wealth management business attributed to family offices and private trusts clients. The Inland Revenue Department would also collect data about the FIHVs benefiting from the tax concession proposal after implementation of the regime.