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Raising Revenue
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Considerations
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75. It is necessary to raise additional revenue of $20 billion between now and 2006-07. The proposals that I am now going to make will raise revenue by $14 billion, and the remaining $6 billion will be raised by measures to be proposed as appropriate over the next three years.
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76. After thorough consideration of the impact on taxpayers and the economy, I put forth the following measures to help stabilise revenue, broaden the tax base, resolve the budget deficit, and ensure financial stability. I will also propose some tax relief measures to tie in with the population policy and promote further development of education and financial services. I believe that the proposed measures strike a fair and reasonable balance that is consistent with the overall interest of the community.
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Salaries Tax
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77. I propose that the marginal tax rates and tax bands under salaries tax revert to their levels before the concessions made in 1998-99. The size of the incremental steps will be increased from 5% to 6%, and the marginal tax rates will be adjusted upward to 2%, 8%, 14% and 20% respectively. The bandwidth will be reduced from $35,000 to $30,000.
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78. I propose that the basic and married person's allowances revert to their levels before the concessions made in 1998-99, from $108,000 to $100,000 and from $216,000 to $200,000 respectively. In 1998-99, the allowance for single parent was increased by 44% to the same level as the basic allowance. I propose that the single parent allowance also be reduced to $100,000. Following implementation of the proposals, about 90,000 more employed persons will come into the tax net, thus helping to broaden the tax base.
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79. I also propose that the standard rate of tax be increased from 15% to 16%.
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80. Considering the prevailing economic situation and that the public's burden is still rather heavy, I propose that all the above proposals should be implemented in two equal phases in 2003-04 and 2004-05. This will provide some relief to taxpayers.
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81. In addition, I propose that the exemption for holiday warrant and passage be removed.
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82. I have decided that the allowances for dependent grandparent, parent, brother or sister, disabled dependant, and deduction for self-education expenses and other deductions should remain unchanged. However, in support of the population policy, I propose to increase the allowance for the third to ninth child from $15,000 to $30,000, equivalent to that for the first and second child.
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83. When fully implemented, the foregoing proposals will generate about $6.8 billion additional revenue for the Government in a full year. Detailed proposals concerning the salaries tax adjustments are set out in the Supplement to this Speech.
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84. We are fully aware that salaries tax increases will have a direct impact on the public, but my proposals should have limited impact on lower to middle income taxpayers. For instance, the tax liabilities of those with monthly incomes of $8,300 to $16,700 will be increased by an average of only $60 a month, with the effective tax rate increasing from 0.7% to 1.2%. The tax liabilities of those with monthly incomes of $25,000 to $33,000 will be increased on average by $410 a month, with the effective tax rate increasing from 3.6% to 5%.
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