Module 2.3 Public Finance of Hong Kong

This set of vocabulary flashcards covers the fundamentals of public finance in Hong Kong, including revenue sources, expenditure items, taxation characteristics, and relevant legal principles from the Basic Law.

Public finance

The management of the Government's revenue and expenditure.

Tax revenue

The collection of money from taxpayers by the government, which accounted for about $60\%$ of total revenue in the fiscal year $2022-23$.

Taxpayer

An individual, company, partnership or any other entity required to fulfil tax obligations.

Profits tax

Tax on profits earned by any person who carries on business operations in Hong Kong.

Salaries tax

Tax payable on income earned by any person from employment or retirement benefits in Hong Kong.

Property tax

Tax payable on rental income generated from letting properties by any person in Hong Kong.

Stamp duties

Tax on the sale and purchase of property, securities trading, and other transactions.

Bets and sweeps tax

Tax on the stake receipts or proceeds that a betting company obtains from horse race betting, Mark Six Lottery, football betting, etc.

General rates

Tax imposed on properties of the owner and the occupier; if a property is rented, both the owner and tenant are liable.

Duties

Taxes on four types of dutiable commodities imported or produced in Hong Kong: liquors, tobacco, certain hydrocarbon oil, and methyl alcohol.

Non-tax revenue

Any government revenue other than tax revenue, including investment income, land premium, and charges for public services.

Investment income

Revenue that includes returns from fiscal reserves placed in the Exchange Fund.

Land premium

Government revenue generated from the sales of land use rights.

Exchange Fund

Established in $1935$, its statutory purpose is to directly or indirectly affect the exchange rate of the Hong Kong dollar and maintain the stability and integrity of monetary and financial systems.

Tax base

The sources from which the tax revenue of the Government comes.

Narrow tax base

A situation where the main sources of tax revenue are paid by a small number of companies ($10\% text{ of total companies paid Profits Tax}$) and working population ($49\% text{ of the working population paid Salaries Tax}$).

Income redistribution

The process where the Government acquires resources by levying taxes on citizens based on their income and reallocates those resources to people in need.

Article 107 of the Basic Law

The principle of keeping expenditure within the limits of revenues in drawing up the budget, striving to achieve a fiscal balance, avoiding deficits, and keeping the budget commensurate with the $GDP$ growth rate.

Deficit budget

A financial situation where the estimated revenue is less than the estimated expenditure.

Balanced budget

A financial situation where the estimated revenue equals the estimated expenditure.

Surplus budget

A financial situation where the estimated revenue is greater than the estimated expenditure.

Principle of keeping expenditure within the limits of revenues

The principle determining government expenditure on the basis of revenue to manage public money prudently.

Welfare states

Countries (e.g., Finland) that provide extensive social welfare for citizens by levying high taxes, which can lead to heavy financial burdens or over-reliance on welfare.