LegCo Paper No. CB(1) 1891/95-96

(These minutes have been seen by the Administration)
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 Fifth Meeting held
on Monday, 20 May 1996 at 4:30 pm
in Conference Room B of the Legislative Council Building

Members Present :

    Hon CHAN Kam-lam (Chairman)
    Hon Mrs Selina CHOW, OBE, JP
    Hon Eric LI Ka-cheung, JP
    Hon Zachary WONG Wai-yin
    Hon CHAN Wing-chan
    Dr Hon LAW Cheung-kwok
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Members Absent :

    Hon Ronald ARCULLI, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon Paul CHENG Ming-fun
    Hon NGAN Kam-chuen

Public Officers Attending :

Mr Haider Barma, ISO, JP
Secretary for Transport
Mr Paul S W LEUNG
Deputy Secretary for Transport
Mr Augustine L S CHENG
Principal Assistant Secretary for Transport
Mrs Spring Y C FUNG
Senior Assistant Law Draftsman
Legal Department
Mr LEE Shu-chee
Assistant Commissioner for Transport
Transport Department
Mrs Agnes SIN, JP
Deputy Commissioner of Inland Revenue (Technical)
Inland Revenue Department
Mrs CHU WONG Lai-fun
Chief Assessor (Special Duties)
Inland Revenue Department

Staff in Attendance :

Ms Kitty CHENG
Assistant Legal Adviser 2
Mr Billy TAM
Senior Assistant Secretary (1)4
Miss Becky YU
Senior Assistant Secretary (1)3

The Chairman reported that the Bills Committee had held four meetings so far and met with 11 deputations who presented their views on the Inland Revenue (Amendment) (No 4) Bill 1995. In addition, the Hong Kong Equipment Leasing Association had written to the Bills Committee on 30 April 1996 and the secretary of the Association who had been consulted had confirmed that the Association would not seek a meeting with the Bills Committee and that circulation of the Association’s letter to members would suffice.

2. At the invitation of the Chairman, Mr Augustine CHENG briefed members on the papers at Appendices II, III and V in LegCo Paper No. CB(1) 1403/95-96, as well as the letter tabled at the meeting from the Transport Branch dated 17 May 1996 providing data on government vehicles.

Inland Revenue (Amendment) (No. 4) Bill 1995

3. In response to a member on the Administration’s stance in the face of so many strong opposing views against the Bill, Mr Haider Barma said that about 16% of cars on the roads during rush hours were company private cars. Since priority for road usage should be given to public transport, the Administration considered that enactment of the Bill should proceed both from a transport point of view and for traffic management purpose. He reckoned that the tax effect on business would be quite minimal.

4. On the feasibility of introducing a straight line method of calculating depreciation allowances, Mr Paul LEUNG and Mrs Agnes SIN advised respectively that the effect of this proposed method on the desire to purchase new cars and on profits tax computation would be very similar to the present method of computation.

5. To address members’ concern that genuine business needs for private company cars were ignored and that the business sector would be adversely affected by the Bill, Mr Barma advised that he would ask the Secretary for Financial Services, the Secretary for Economic Services and other government departments concerned to study the overall bearing of the Bill on businesses. While the Transport Branch did not think the financial implications would be substantial, it would take stock of the findings by these branches and departments.

6. In commenting on the Administration’s responses to the views of LegCo members and deputations, a member said that many of the arguments were unconvincing. He questioned the rationale for the Bill to penalize the business sector while the Administration was adopting a double standard by granting tax-free car benefits to senior civil servants. Furthermore, most members disagreed with the use of the term "concession" and considered that as with other plant the machinery, company cars were genuine tools for conducting businesses. Such expenses were legitimately incurred in the production of assessable profits and their deductions were allowed for under the Inland Revenue Ordinance. The withdrawal of such deductions would therefore be construed as a penalty to business entities.

7. A member pointed out that while tax measures had in the past been used to influence personal behaviour, such as the grant of dependent parent allowance, the customs and excise duties on tobacco and alcoholic beverages, the proposed dependent brother/sister allowance and the proposed deduction of training course fees, never before had fiscal means been deployed to affect economic behaviour, As regards the example quoted by the Administration on disallowing contributory payments for non-recognised occupational retirement schemes, he highlighted the fact that this was only meant to encourage a taxpayer to switch to registered retirement schemes. Unlike these examples, the proposed Bill represented a penal provision.

8. Mr Barma emphasised that the Bill was only one of the measures to combat traffic congestion, and the legislation had been drafted as the proposal received wide support at the time of consultation. While some members did not dispute the fact that the Bill might have received widespread support at the time of consultation, they pointed out that the details were not then available and above all the Administration was conducting a public consultation without having specifically invited the views of professional bodies concerned. In contrast, the Bills Committee had met with representatives from professional organisations in the taxation and accounting fields who had had the opportunity of examining the Bill in depth and had unanimously voiced strong objections against the Bill. Members said that the strong opposing views presented by the deputations to the Bills Committee should be considered seriously by the Administration.

9. The Chairman requested members to indicate their stance on the Bill. Hon Mrs Selina CHOW, Hon Eric LI and Hon CHAN Wing-chan objected to the Bill. Hon SIN Chung-kai and Dr Hon LAW Cheung-kwok, on behalf of the Democratic Party and the Hong Kong Association for Democracy & People’s Liveihood respectively, also objected to the Bill.

Eastern Harbour Crossing Road Tunnel (Passage Tax) Bill & Road Traffic (Amendment) (No. 3) Bill 1995

10. Mr Barma explained that these two Bills were also measures for curbing car growth. The Administration was seeking the enabling authority so that increases in annual licence fees and the imposition of passage tax on vehicles using the Eastern Harbour Crossing Road Tunnel could be effected swiftly when the need arose. Otherwise, the necessary legislative process would take months to complete. He also emphasised the fact that the power of approving any actual increases in fees and the passage tax remained with Legislative Council under the positive resolution procedure. Moreover, any additional revenue collected as a result of the increases in real terms would go into a Transport Fund for transport purposes.

11. Members were worried that enactment of the two Bills would result in excessive increases. They were also concerned that fiscal policies would be used not as short-term measures to alleviate traffic congestion but would be taken advantage of permanently. Some members considered that the development of road networks and infrastructural developments were the only feasible solutions to traffic congestion, and expressed dissatisfaction at the Administration’s failure in these respects. Members were of the view that both Bills had gone beyond the "user pays" principle since traffic congestion would be cited as the reason for introducing passage tax and increasing annual licence fees.

12. With the impending opening of the Western Harbour Crossing (WHC) in March 1997 which would ease cross harbour traffic considerably, members further cast doubt on the need for the Eastern Harbour Crossing Road Tunnel (Passage Tax) Bill. They sought the Administration’s undertaking that the increase in annual licence fees and the imposition of passage tax would not take place prior to the opening of the WHC. Mr Barma said that while there were no concrete plans for implementation of provisions in the two Bills, it was not possible to give the guarantee as requested by members.

13. Mr CHENG did not rule out the possibility of claims for compensation against the Administration from the operator of the Eastern Harbour Crossing Road Tunnel upon imposition of passage tax which might affect its patronage. He quoted the case concerning the Cross Harbour Tunnel (CHT) some years ago where an ex-gratia payment of about $14 million was made by the Administration to the CHT following a sharp drop in traffic upon the introduction of passage tax. He added that in the subsequent arbitration on CHT’s application for a toll increase, the CHT also lost its case. Members found it difficult to accept, despite the proposal having been approved by the Finance Committee, that the Administration should have put forward such an ex-gratia payment proposal.

14. Upon the Chairman’s request for indication of stance, three members present (Hon Eric LI, Hon CHAN Wing-chan and Dr Hon LAW Cheung-kwok) expressed reservations on the Eastern Harbour Crossing Road Tunnel (Passage Tax) Bill while the other four members present did not support the Bill. All members present objected to the Road Traffic (Amendment) (No. 3) Bill 1995. In particular, Hon Zachary WONG indicated that the Democratic Party had not been in support of this Bill from the outset.

The Administration’s Concluding Remarks

15. Mr Barma thanked members for their views and the indication of their stance on the three Bills. He advised that measures were required to tackle traffic congestion and that close co-operation between LegCo Members and the Administration was essential in dealing with the problem. He admitted that fiscal policies were unpopular but advised that past experience showed that these were effective as interim measures. The Administration would nevertheless take note of members’ stance and the strong arguments put forward and would re-think its position.

The Chairman’s Concluding Remarks

16. The Chairman concluded that the Bills Committee had completed scrutiny of the three Bills, and would urge the Administration to withdraw the three Bills; a report would be prepared for consideration by the House Committee.

17. The Chairman noted that Mr Barma would soon retire from the civil service and thanked Mr Barma for attending this last meeting of the Bills Committee. He wished him every success in his future endeavours. In return, Mr Barma also thanked members for their co-operation and valuable advice.

18. There being no other business, the meeting ended at 5:55 pm. Council Business Division 1

LegCo Secretariat
23 July 1996

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