Provisional Legislative Council

PLC Paper No. CB(1) 1112

Ref : CB1/BC/9/97

Paper for the House Committee meeting
on 13 March 1998
Report of the Bills Committee on Dutiable Commodities (Amendment) Bill 1998

Purpose

This paper reports on the deliberations of the Bills Committee on Dutiable Commodities (Amendment) Bill 1998 on the examination of the legislative proposals to increase revenue relating to dutiable commodities in the 1998-99 Budget.

The Bill

2. The object of the Bill is to amend the Dutiable Commodities Ordinance (Cap. 109) to give legal effect to the proposals in the 1998-99 Budget to increase the duties on tobacco, hydrocarbon oil and methyl alcohol by 6% and to make ancillary amendments to the Ordinance and its subsidiary legislation. The ancillary amendments allow the granting of duty exemption to franchised bus companies in respect of buses operated under a hiring agreement or a hire-purchase agreement. The proposals under the Bill have come into effect on 18 February 1998 at 2:30 pm by virtue of the Public Revenue Protection (Dutiable Commodities) Order 1998 which shall expire upon the passing or rejection of the Bill, or after four months from the day it comes into force, whichever is the earlier.

The Bills Committee

3. At its meeting on 6 March 1998, the House Committee decided to form a Bills Committee to study the Dutiable Commodities (Amendment) Bill 1998. This Bills Committee replaced the Subcommittee which was formed at the House Committee meeting on 27 February 1998 to study the Public Revenue Protection (Dutiable Commodities) Order 1998.

4. Hon Ronald ARCULLI was elected Chairman of the Bills Committee. The Bills Committee has held one meeting with the Administration. The membership list of the Bills Committee is at Appendix I.

Deliberations of the Bills Committee

5. During the course of its study, the Bills Committee focused on the examination of the need to increase duties on fuel and methyl alcohol.

Increased duties on fuel

6. The Administration proposes to increase duty in petrol to help control the use of private vehicles and to encourage the use of public transport. The increase in light diesel oil duty aims to provide an incentive for users to switch from diesel oil to a cleaner fuel. The Administration considers that the proposed increase of 6%, in line with inflation, will not give serious impact on the operators and drivers in the taxi, public light bus and lorry trades in view of the drop in fuel prices in the past year. Given the proposed adjustment, the operating cost for taxi will increase by $6 to $7 per day or $200 per month. For public light bus, a monthly increase of $170 per month is expected. Even after the increase, fuel duty rate would be preserved at about 43% of the total fuel price.

7. Members of the Bills Committee cannot accept the reasons for the proposed increases. Regarding the increase in petrol duty to control the use of private vehicles, members cannot find any statistical support for the co-relation between increase in petrol duties and decrease in use of private cars. Some members consider that the traffic congestion problem is mainly due to the inadequate transport infrastructure and the lack of mass transit system in densely populated districts. Hence, increasing fuel duties is not a solution to the problem.

8. As regards the use of duty increase to encourage switching to cleaner fuel, members consider that the Administration should reduce the duty on unleaded petrol or introduce positive incentives instead. At present, for commercial vehicles such as taxis and public light buses, there is no alternative to replace diesel oil. Even if the trial scheme of Liquefied Petroleum Gas (LPG) proved to be successful, it would still need another five years for the completion of the switch from the use of diesel oil to LPG for all road vehicles. Hence, the proposed increase in diesel oil duty is unable to reduce air pollution. In the midst of economic depression, members opine that the Administration should take into consideration the financial hardship faced by taxi operators and the drivers due to the decrease in the number of taxi passengers.

9. Members are also concerned about the illegal use of industrial diesel fuel. They consider that the rise in the price of diesel oil will drive people to seek industrial diesel fuel as a substitute for light diesel oil in vehicles. Despite the Administration's explanation on the stepping up of the enforcement action, Members are still of the view that the increase in fuel duties will aggravate the problem.

10. Members are aware that the 1998-99 Budget has proposed a number of tax reductions for many sectors of the community having regard to the economic downturn. They do not agree that the Administration should target its source of additional revenue at taxi, public light bus and lorry operators and drivers who use the vehicles as a means of living. Furthermore, with a substantial reserve of more than $10.7 billion, the $0.4 billion revenue from the proposed increase does not serve any significant purpose.

Increased duties on methyl alcohol

11. According to the Administration, the increase in methyl alcohol duty is necessary on health grounds to maintain the current financial disincentive for use of methyl alcohol, which is poisonous, in the production of adulterated liquor. Members, however, consider that there is no co-relation between increase in methyl alcohol duty and production of adulterated liquor. They are of the view that the proposed increase is not an effective deterrent measure for the abuse of methyl alcohol. That apart, members are aware of the provision of methyl alcohol for industrial use. They consider that given the recent economic downturn, the Administration should support industrial development and should not increase duty on methyl alcohol.

Conclusions

12. The Bills Committee has reached an unanimous view in its objection to the proposed increase in duties on fuel and methyl alcohol. Given the technical difficulties in refunding the duty collected since 2:30 pm on 18 February 1998 to the payees, members also agree to move an amendment to provide that the excess duty collected should not be refunded. The Bills Committee has also agreed that the Chairman, Hon Ronald ARCULLI, should move Committee stage amendments to such effect on behalf of the Bills Committee.

13. The Bills Committee has no objection to the increase in duties on tobacco, and supports the ancillary amendments to the Dutiable Commodities Ordinance and its subsidiary legislation regarding the granting of duty exemption to franchised bus companies in respect of buses operated under a hiring agreement or a hire-purchase agreement.

Committee stage amendments

14. A full set of the Committee stage amendments to be moved by Hon Ronald ARCULLI is at Appendix II.

Advice sought

15. Members are requested to support the conclusions reached by the Bills Committee as detailed in paragraphs 12 to 13, and to support the Committee stage amendments to be moved by Hon Ronald ARCULLI when the Bill resumes its Second Reading debate on 25 March 1998.


Provisional Legislative Council Secretariat
12 March 1998

---

Appendix I

Provisional Legislative Council

Bills Committee on Dutiable Commodities (Amendment) Bill 1998

Provisional Legislative Council Secretariat
10 March 1998