Panel on Financial Affairs
Information Paper on
Charging of Rates on Unoccupied Premises
PURPOSE
This paper explains to members the justifications for charging rates on unoccupied premises.
BACKGROUND
2. At present, rates are being charged on both occupied and unoccupied premises. Domestic premises are assessed to rates 90 days after completion, irrespective of whether they are occupied or not. Non-domestic premises are subject to rates 180 days after completion or from the date of first occupation, whichever is the earlier.
JUSTIFICATIONS
3. There are several reasons for maintaining the policy of charging rates on all premises, irrespective of whether they are occupied or not.
a. Equity of Contribution
4. Rates are a general charge on properties to finance the costs of government and Municipal Council services such as police cover, fire protection, street lighting and refuse collection. Provision of these services is available to both occupied and vacant buildings. It is therefore reasonable for the owners of vacant properties to pay rates as well. Otherwise, owners or occupiers of the occupied premises may have to bear a higher share of costs by paying more rates. The Rating Ordinance was amended as recently as 1995 to remove unjustified concession for unoccupied non-domestic premises.
5. Exempting vacant premises from the payment of rates may be unfair to premises occupied by owners whereby no rental income would be generated. We believe that normally premises acquired for occupation by the owners would not remain unoccupied for long and the majority of vacant premises in the market are pending sales or letting. We see no justification in subsidising such commercial decisions.
b. Significant Revenue Implications
6. It is estimated that some 5% of premises in Hong Kong are presently unoccupied. It is estimated that it will cost $770 million in 1998-99 if full refund of rates is allowed for these premises. On the other hand, rates only form an insignificant portion of household income and business operating cost. In the 1960s and 1970s, rates as a percentage of median household income stood at or close to 4.0%. Over the years this proportion has fallen to the present 1.8%. For non-domestic premises, rates represent less than 0.1% of business operating cost. Hence, vacancy refund is unlikely to be an effective means for alleviating the financial burden of property owners or business operators.
c. Costly to Administer
7. In order to provide refund of rates for unoccupied premises, we estimate that we will require the creation of 53 posts, for processing applications and inspecting premises on a random basis, at a total staff and administrative cost of about $30 million. As checking of each and every property which is reported to be vacant is extremely costly, the refund, if given, will have to be granted largely based on the declaration of property owners. This would create opportunities for abuse whereby property owners give false declaration that their properties are vacant. As such, the revenue implications of the refund would even be higher.
d. Encouraging Early Occupation of Premises
8. Unoccupied premises represent idle resources on developed land. Given that land resources are scarce in Hong Kong, it is desirable from the community's point of view that such scarce resources are put into beneficial use for as long as possible during their physical life. While the need to pay rates for vacant premises will not do much to discourage owners from keeping their properties vacant, the provision of such refund will obviously not encourage speedier occupation.
e. Relief Measures to Reduce the Rates Burden
9. In 1997-98 we reduced the overall rates percentage charge from 5.5% to 5%. We have further reduced the charge to 4.5% for one year this year in order to alleviate the additional financial burden on property owners. In addition, we would be refunding rates paid for the April to June quarter as one of the special relief measures to address the present economic downturn. Taken together, the concessions have reduced the average rates payable in 1998-99 by 32.5% as compared with that of the April 1997 level.
CONCLUSION
10. We are mindful of the difficulties that members of the public are now facing during the present economic downturn and have introduced various measures to relieve hardship. We do not support the proposed restoration of vacancy refund as it is inequitable, costly and will not relieve the burden of the public in general.
Finance Bureau
29 September 1998
