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Reducing Administrative and Compliance Costs through E-tax Solutions and Special Services: What works for micro and small businesses?

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Reducing Administrative and Compliance Costs through E-tax Solutions and Special Services: What works for micro and small businesses?. Presented by : Mr. Chi-keung Tang Senior Assessor IRD, HKSAR March 2010.

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Reducing Administrative and Compliance Costs through E-tax Solutions and Special Services:What works for micro and small businesses?

Presented by : Mr. Chi-keung Tang

Senior Assessor

IRD, HKSAR

March 2010

tax regime of hong kong
Tax Regime of Hong Kong
  • A simple and transparent tax system
  • Three kinds of direct taxes:
    • Profits Tax
    • Salaries Tax
    • Property Tax
  • Official assessments adopting a territorial source principle
tax regime of hong kong1
Tax Regime of Hong Kong
  • Other duties and fees
    • Stamp Duty
    • Betting Duty
    • Business Registration Fee
  • No VAT or GST
  • No tax is payable on dividend income, interest, or capital gains
tax regime of hong kong2
Tax Regime of Hong Kong
  • Total revenue collected in 2008-09 is HK$191.4 billion
  • Earnings & profits tax amounted to HK$146.1 billion (76% of total)
    • Profits Tax – HK$99 billion
    • Salaries Tax – HK$39 billion
  • Stamp duty of HK$32.1 billion
  • Betting duty of HK$12.6 billion
  • 3.6 million files of various categories of taxpayers

(HK$7.8 = US$1)

tax policy for mse
Tax Policy for MSE
  • No definition of SME or MSE in the law
  • Lower tax rate of 15% for unincorporated businesses (16.5% for corporations)
  • No need to submit supporting accounts and documents if gross income < HK$0.5M
  • Businesses with no taxable profits are reviewed once every few years
  • Simplified filing requirement for sole proprietorship businesses – in Composite Tax Return (CTR)
  • No specific operational unit / group that gears towards SME or MSE in IRD
compliance requirements
Compliance Requirements
  • Business Registration
  • File Employer’s Return
  • File Profits Tax Return / Composite Tax Return for individuals
  • Pay tax
  • Inform change of address and other business particulars
business taxpayers composition
Business Taxpayers Composition
  • For 2008/09, in terms of number
business taxpayers composition1
Business Taxpayers Composition
  • For 2008/09, in terms of assessed profits (HK$)
business taxpayers composition2
Business Taxpayers Composition
  • In terms of number of employees reported as at 31 December 2009
use of information technology
Use of Information Technology
  • e-Services as a solution to fulfill demand for quality service with more effective use of resources
  • Help taxpayers to reduce compliance costs
  • Aligned with the Digital 21 Strategy of HKSARG in formulating e-services plans
  • Participated in the Electronic Service Delivery (ESD) Scheme launched in December 2000
  • Provided 9 online services for business registration, e-filing of tax return, tax enquiry and payment
etax portal
eTAX Portal
  • GovHK, the one-stop portal of the HKSAR Government was launched in 2007
  • eTAX, the new taxpayer’s portal was launched under GovHK in January 2008
etax account
eTAX Account
  • Provides a one-stop service for individual taxpayers (including sole proprietors) to:
    • Receive e-notification to file return (CTR)
    • Complete and submit the return
    • Receive e-assessment notice
    • Request for revised assessment
    • View eTAX account profile, Tax Position and Messages
    • Update personal particulars
    • Receive e-Alert for approaching filing and payment deadlines
    • Pay tax
    • Receive e-Receipts for tax payments
other online services
Other Online Services
  • For Businesses
    • Apply for Business or Branch Registration
    • Change Business Particulars
    • Business Registration Number Enquiry
    • Apply for Supply of Information on the Business Register
  • For Properties
    • Stamp Property documents
    • File and view Property Tax Return
  • For Payments
electronic submission of employer s return
Electronic Submission of Employer’s Return
  • Businesses may develop their own software to submit employer’s return data in electronic format
  • IRD developed employer’s return software for free distribution to small businesses
measures to reduce administration costs
Measures to Reduce Administration Costs

Back end systems in place to reap the benefits

  • Assessed First Audit Later (AFAL) system
    • Automate screening and issuing of assessments
    • Automate selection of cases for desk audits
  • Document Management System
    • Capture e-filings, e-requests for revised assessment and notices of assessment in addition to paper documents for retrieval and viewing by both internal staff and taxpayers
  • Workflow Management System
    • Route e-requests for revised assessment along with paper requests to relevant handling officers and monitor progress
taxpayer education
Taxpayer Education
  • Participates actively in the Taxes & Duties Cluster of GovHK
  • Disseminates a wide array of tax information on our website:
    • Practice notes and tax guides
    • Procedural guides and downloadable forms
    • e-Seminars
    • Tax computation programs
    • Frequently asked questions and answers
  • Provides eTAX help desk
  • Partners with professional bodies and participates in outreaching programmes
experienced gained
Experienced Gained
  • Low popularity of digital certificate
  • Legislative amendment in 2003 to enable the use of password as an alternative means of authentication
  • Number of e-filers rose to 250,000 (around 10% take-up rate) currently
  • eTAX account brought about 4% increase in take-up rate of e-filing
  • Take-up rate of e-filing for sole proprietors is still very low -1.3% only
experienced gained1
Experienced Gained
  • Around 2.5 million out of 3.2 million of employees data were submitted electronically (around 78%) in 2008-09
  • 36,900 employers used the free software to submit 870,000 employees data
  • Around 56% of 2.4 million payment transactions of Earnings and Profits Tax were made electronically in 2008-09
  • Around 60% of 0.5 million property stamping applications were submitted electronically in 2009-10
upcoming initiatives
Upcoming Initiatives
  • Law amendment to accept password as authentication means for e-services related to business registration
  • Law amendment to enable the provision of joined–up service for company registration and business registration
  • Implement e-filing of profits tax return for partnership and corporations in April 2010
  • Extend the gross income limit for waiver of supporting accounts to HK$2M
  • Accept individual authentication for e-filing of corporate profits tax returns
  • Accept MARS password authentication to be launched by GovHK in September 2010
  • Online submission of employer’s return in contemplation
issues for discussion
Issues for Discussion
  • Identification of MSE is not a major problem in Hong Kong
  • Hard to create further incentives for taxpayers to use e-services
    • Extension of filing deadline by one month already granted to e-filers
    • Pre-populated returns already provided
    • Only a few interactions annually
  • Provision of free software for filing of employer’s return seems to be a successful path
  • Provision of deeper forms of facilitation of businesses such as offering free accounting modules or collaborating with software industry?
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