LegCo Paper No. CB(1) 1888/95-96
Ref : CB1/BC/18/95/2

Bills Committee on
Road Traffic (Amendment) (No. 3) Bill 1995
Eastern Harbour Crossing Road Tunnel (Passage Tax) Bill
& Inland Revenue (Amendment) (No. 4) Bill 1995

Minutes of the Second Meeting held
on Thursday, 11 April 1996 at 10:45 am
in the Chamber of the Legislative Council Building

Members Present :

    Hon CHAN Kam-lam (Chairman)
    Hon Mrs Selina CHOW, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon Eric LI Ka-cheung, JP
    Hon Zachary WONG Wai-yin
    Hon CHAN Wing-chan
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Members Absent :

    Hon Ronald ARCULLI, OBE, JP
    Hon Paul CHENG Ming-fun
    Dr Hon LAW Cheung-kwok

Public Officers Attending :

From the Administration

Mr Augustine L S CHENG
Principal Assistant Secretary for Transport
Mrs Hedy CHU
Assistant Secretary for Transport

Attendance by Invitation :

From the Hong Kong Society of Accountants
Mr Tim T L LUI
Mr David Southwood
Ms Winnie CHEUNG

From the Motor Traders Association of Hong Kong
Mr Peter CHAN
Mr B H CHOW
Mr Michael LEE

From Coopers & Lybrand/Trinity Rent A Car Ltd/ Avis Rent A Car
Mr Jeffrey May
Coopers & Lybrand
Mr Edward Man-sang TSE
Trinity Rent A Car Ltd
Mr WONG Kai-yuen
Avis Rent A Car

From the Hong Kong and China Gas Company Ltd
Mr MOK Kwai-pui, Bill
Mr CHOW Man-sang, Eric
Mr LIN Kai-choi, Matthew

From Computer Products Asia-Pacific Ltd
Mr John AU-YEUNG
Mr Jason NG

Staff in Attendance :

Mrs Vivian KAM
Chief Assistant Secretary (1)2
Ms Kitty CHENG
Assistant Legal Adviser 2
Mr Billy TAM
Senior Assistant Secretary (1)4

Meeting with Deputations and Views on the Inland Revenue (Amendment) (No. 4) Bill 1995 (the Bill)

The Chairman informed members that eleven organisations had so far made representations on the Bill. Except for one organisation which had decided not to attend the Bills Committee meeting, five organisations would meet with members at the present meeting and another five would attend the third Bills Committee meeting on 15 April 1996. Each deputation would have about 20 minutes to elaborate their views. The Administration had also been invited to the meeting for the purpose of listening to views expressed in order to facilitate the Administration’s response subsequently.

2. The Chairman then welcomed representatives from the five deputations to the meeting and invited them to present their views on the Bill.

(A) The Hong Kong Society of Accountants

3. Mr Tim LUI from the Hong Kong Society of Accountants (HKSA) said that the Society objected to the Bill. He made the following points:

  1. the HKSA had reservations on the proposed tax measure to reduce traffic congestion and considered it unacceptable for the Administration to use tax as a social engineering tool;
  2. the Bill violated the fundamental tax principle of allowing expenses incurred in the production of assessable profits and complicated the Hong Kong tax system;
  3. the Bill would increase the operating costs of companies and was particularly unfair to car rental companies, hotel operators and tourism-related industries which had a genuine need for cars. The HKSA found it inequitable for the Bill to penalise businesses which needed cars for daily operation and yet Government and non-profit making organisations were not caught by the provisions; and
  4. the Commissioner of Inland Revenue could decide whether to disallow deduction for use of cars for non-business purposes. The present deductibility provision should not be regarded as a "concession". On the contrary, the proposed withdrawal of existing legitimate deductions could be taken as a penalty to business entities.

4. In response to a member, Ms Winnie CHEUNG confirmed that the HKSA had clarified with the Inland Revenue Department and was now of the view that there was no drafting error in respect of section 6 of the Bill regarding transitional arrangements.

(B) The Motor Traders Association of Hong Kong

5. Mr B H CHOW of the Motor Traders Association of Hong Kong disagreed with the Bill. He tabled for members’ reference a graph on the Hong Kong Private Car Market and a report prepared by the Association in January 1995 on "Dealing with Hong Kong’s Traffic Congestion".

(Post meeting note: The two documents were circulated to absent members vide LegCo Paper No. CB(1) 1233/95-96.)

6. Apart from complicating and running contrary to the Hong Kong low tax system, Mr CHOW also criticised the Bill for further aggravating the unemployment situation in Hong Kong, adding that the drop in car sales in 1995 by 30% had already resulted in the laying off of 15% of staff in a number of car-related trades. He did not see the need for such a control measure when the increase in new car registration was well below 2%. Mr CHOW suggested that the Administration should concentrate on electronic road pricing for solving traffic congestion once resources had been allocated.

(C) Coopers & Lybrand/Trinity Rent A Car Ltd/Avis Rent A Car

7. Mr Jeffrey May from the Coopers & Lybrand advised that he was representing the Trinity Rent A Car Ltd and Avis Rent A Car both of which were in the car hire industry and together employed about 60 staff in Hong Kong. He was of the view that the proposed measure would have significant impact on the allowable deductions and would end in companies passing higher operating costs to customers. He also did not see the effectiveness of the Bill in alleviating traffic congestion given the existing client base since companies would still find it affordable to own private cars. If on the other hand company cars were reduced, staff might end up buying cars of their own and the purpose of the Bill would be defeated.

8. Mr May suggested that an exclusion clause be added to exempt car-rental companies, hotel operators and car-financing companies from the provisions of the Bill. He said that consideration could be given to following the Australian tax law which disallowed entertainment expenses except for those engaged in the business of providing entertainment.

9. Mr Edward TSE from Trinity Rent A Car Ltd was of the view that car-rental companies were providing a car pool service to persons who required cars for short terms. As such, the business actually contributed towards a reduction of the number of cars on the road. He also confirmed that the Inland Revenue Department had advised that in accordance with the provisions of the Bill, all direct expenses of car-rental companies would be denied.

10. In response to members, Mr WONG Kai-yuen from Avis Rent A Car said that there were about 1,000 private cars owned by car-rental companies. Car-rental companies which found it difficult to survive would be forced to close down their business altogether, rather than taking the alternatives of passing the costs to the consumers, or reducing the size of the fleet as a member suggested. He estimated that car-rental charges would have to be increased by about 16.5% to cover the additional tax payment. Since the Financial Secretary had recently announced measures to encourage only the scrapping of old cars, Mr WONG was disappointed that the proposed Bill was not following the same principle.

(D) The Hong Kong and China Gas Company Ltd

11. Mr MOK Kwai-pui of the Hong Kong and China Gas Company Ltd doubted the effectiveness of the Bill in alleviating traffic congestion, stating that past efforts in raising tax to curb car numbers had failed. Genuine car users would not give up car usage and would turn to other types of vehicles to claim tax deductions. As with other deputations, Mr MOK felt that the Bill violated the tax principle of allowing deduction of expenses for producing assessable profits, and suggested that the Bill be scrapped.

12. Mr MOK emphasised that being a public utility company, the Hong Kong and China Gas Company Ltd owned a large fleet of private cars. These were required to provide essential services such as leakage checking, maintenance of duct network and supervision of works at construction sites where public transport was not assessable or where goods vehicles were prohibited in certain areas.

13. In response to members, Mr LIN Kai-choi advised that the costs of the company’s vehicles were written off in five years. Although the estimated additional tax payment of $3 million was relatively insignificant as compared with the company’s profit of $1.5 billion, it was the principle that counted. Mr MOK affirmed that the company would not pass the additional costs onto consumers and neither would the company reduce the size of the fleet as the cars were required for safety reasons.

(E) Computer Products Asia-Pacific Ltd

14. Mr John AU-YEUNG of the Computer Products Asia-Pacific Ltd said that the company was an international computer firm with 1,000 employees in Hong Kong and with clients from all over the world. The company had three cars for receiving clients and overseas staff. As this was an essential service, it was unfair for the Bill to try to remove the tax deductions. While he acknowledged that the impact of the Bill was minimal on the company which had a business turnover of about US$1 billion, Mr Au-YEUNG emphasised that the company was objecting to the Bill as a matter of principle. He further pointed out that the company was already exercising self-restraint by using only three cars.

Way forward

15. Before concluding, the Chairman reminded members that the Bills Committee would next meet on 15 April 1996 at 4:30 pm to meet another five deputations. There being no other business, the meeting ended at 12:40 pm.

Council Business Division 1
LegCo Secretariat
23 July 1996

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