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20th LEGCO REPORT TO HKSA COUNCIL By Hon. Eric K.C. Li


I. Highlights

To present orally.

II. Committees and Panels

@ 1. Public Accounts Committee (PAC):

I was elected Chairman of the PAC for another four years in its first meeting on the 20th October 2000.

On 15 November 2000, the Director of Audit tabled his Report No. 35 in the Legislative Council. The Report No. 35 contains 12 chapters. The Committee, after holding three days of public hearings to receive evidence from the Controlling Officers, are now meeting in closed door to deliberate on our own independent conclusions. I intend to present the PAC Report to LegCo on 7 February 2001.

@ 2. Financial Affairs Panel:

The Panel held 4 meetings to date and the relevant agenda are attached as Appendix I.

On 10 November 2000, the Panel received a briefing from the Financial Services Bureau on the Securities and Futures Bill, Banking (Amendment) Bill as well as Process Review Panel the Chairman of the Securities and Futures Commission (SFC). The Administration began the bill's drafting process eight years ago. The amendments include shifting the burden of proof from the defendants to the SFC and reducing maximum penalties for 10 criminal offences.

The Financial Secretary (FS) also briefed the Panel on Hong Kong's latest economic situation on 4 December 2000. He claimed that the deficit for the current financial year is likely to reach $11 billion while the jobless rate will take two years to fall to a "normal" level.

A proposed list of future agenda items is attached as Appendix II for reference.

@ 3. Economic Services Panel:

The Panel held 5 meetings to date. The Panel focused on the progress update on Hong Kong Disneyland, retail prices of major fuels and competition in the markets, Hong Kong Electric Co. Ltd's proposed tariff revision, Hong Kong Tourist Association (Amendment) Bill and the Report on the work of the Competition Policy Advisory Group.

There were two special meeting, one was a closed session to discuss the retail prices of major fuels and competition in the markets, the other was to receive a briefing by the experts from the United Kingdom Civil Aviation Authority who are currently engaging in a review of the air traffic control system in Hong Kong from 4 December to 8 December 2000.

@ 4. Information Technology and Broadcasting Panel:

The Panel held 4 meetings to date. The Panel discussed the licensing of third generation mobile services, the Cyberport, digital broadcasting, the administration of Internet domain names in Hong Kong as well as Public Opinion Survey on Film Classification 2000.

Two special meetings were held to study the Draft Generic Codes of Practice for Television and Draft Radio Codes of Practice, the Draft Competition Investigation Procedures and Draft Guidelines to the Application of the Competition Provisions of the Broadcasting Ordinance. It also studied the implementation of carrier licence under Telecommunication (Amendment) Ordinance 2000, licence fees for TV programme service licensees, Entertainment Special Effect Regulation (draft) and code of practice and block vote funding for computerisation for 2001-02.

These discussions reflect that the Administration is liberating the information technology market in full speed.

@ 5. Education Panel:

The Panel held 4 meetings to date. The Panel mainly focused on the reform proposals for the education system in Hong Kong, the Education (Amendment) Bill, Composite Furniture and Equipment Grant, the modification to Direct Subsidy Scheme, and one-off matching grant of $50 million to the Open University of Hong Kong for the Information Technology Development Plan.

There was a special meeting to listen to the views of school sponsoring bodies and parent-teacher associations on school-based management.

@ 6. Environmental Affairs Panel

There were 7 meetings of Environmental Affairs Panel (including 3 special meetings to examine the Administration's proposal to increase the approved project estimate of 320DS "Strategic Sewage Disposal Scheme State I: completion of sewer tunnel system from Kwai Chung to Stonecutters Island and to receive a briefing from the International Review Panel (IRP) on its report of the Strategic Sewage Disposal Scheme as well as a Joint meeting with Panel on Transport to discuss the control of vehicle emissions)

It also studied the management of construction and demolition materials and water quality at Shing Mun River, the protection of wetlands in Hong Kong, the proposed amendment to Waste Disposal (Refuse Transfer Station) Regulation and vapour recovery of dry cleaning machines.

@ 7. Finance Committee and House Committee:

There were 3 meetings of Finance Committee and 10 meetings of House Committee.

TD of HKSA were kept informed of progress on all Bills on a weekly basis. The introduction of Government Bills in the current legislative session dated 27 October 2000 is attached as Appendix III. I held two separate stocktaking meetings with the Secretariat on 17 October 2000 and 13 November to closely monitor progress of all HKSA submissions. I plan to hold such meetings regularly in future.

III. Bill Committees Joined

@ 1. Inland Revenue (Amendment) Bill 2000

I was elected Chairman of this Bills Committee. There were 3 meetings held since the last report. The Bill seeks to amend the Inland Revenue Ordinance (Cap. 112) ("the Ordinance") to:

@ @ (a) provide that all sums payable for the use of intellectual property (whether in or outside Hong Kong) by a person carrying on a trade, profession or business in Hong Kong and deductible in ascertaining the assessable profits of that person are deemed to be receipts arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong;
@ @ (b) amend the conditions which must be satisfied for deduction of interest payable by a person upon money borrowed by him for the purpose of producing assessable profits;
@ @ (c) revise the method of computation of annual allowances and the determination of balancing allowances and charges in respect of commercial and industrial buildings and structures;
@ @ (d) amend the definition of "expenses of self-education" to include fees paid in respect of certain specified examinations;
@ @ (e) allow deduction of interest paid on the portion of a home loan in respect of a car parking space if such loan has been applied for the acquisition of the car parking space;
@ @ (f) empower the Board of Review to extend the time for lodging notice of appeal against the assessment to additional tax;
@ @ (g) provide for certain costs and fees to be specified in a Schedule to the Ordinance and empower the Secretary for the Treasury to vary the amounts by order; and
@ @ (h) make technical amendments.
@ @ HKSA made a detailed submission to the Bill as well as appearing in front of the Bills Committee on the 4 December 2000. HKSA submits that the Bill casts a net that is far too wide, which could have significant adverse implications for the commercial debt market of Hong Kong, particularly in respect of the amendment to Section 15 and 16.

Considering the proposed new Section 15(1)(ba) (certain amounts deemed trading receipts), HKSA suggests that it seems to be inconsistent with the fundamental principle of "source" in the Hong Kong tax regime since it may make the recipient of royalty taxable in situations in which that person is charging the royalty for activities conducted exclusively outside of Hong Kong.

With regard to the proposed Clause 6 (ascertainment of chargeable profits) Section 16, HKSA considers that Section 16(2)(f)(iii)(A) will be beyond an issuer's control to prevent an associate acquiring debentures. Besides, such amendment seems unfair and against the spirit of s16(2)(f) to deny a deduction for any interest paid to unrelated parties simply because some portion of the debentures are held by associates.

Under the proposed s16(2)(d)(ii), the Bill seeks to extend the conditions that attach to borrowings secured or guaranteed by deposits to arrangements involving loans. It is not apparent, however, in what sense the money borrowed in the situations described above could be said to be secured by a loan.

HKSA also considers s16(2)(e). HKSA would like to obtain clarification as to the justification for expanding the section in a way which has seemingly not been deemed to be necessary for the previous 16 years of its existence.

Under Clause 14 (Hearing and disposal of appeals to the Board of Review) Section 68(9), HKSA would like to make the point that the potential costs should not be set at such a level as to discourage good faith applications to the Board.

The Bill has received numerous other submissions along the same line and I have temporarily suspended further meetings of this Bills Committee until the Administration has an opportunity to rethink and to consult relevant bodies on their proposals.

@ 2. Rehabilitation Centres Bill

The Committee met twice since the last report. The objective of the Bill is to provide for the appointment of rehabilitation centres for the detention and rehabilitation of offenders of or over 14 and under 21 years of age and for related matters.

The Bill does signify a new step in tackling juvenile delinquency.

@ 3. Drug Trafficking and Organized Crimes (Amendment) Bill 2000

There was only 1 meeting held since the last report. The main objects of the Bill are to:

@ @ (a) make parallel amendments to the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405) ("the DT(RoP)O") and the Organized and Serious Crimes Ordinance (Cap. 455) ("the OSCO") to -
@ @ @ i. empower the Court of First Instance, in the case of a person who has been arrested for a drug trafficking offence or a specified offence under the OSCO, and released on bail, to issue a restraint or charging order against the person's property, if the Court is satisfied that there is reasonable cause to believe that the person may be charged with the offence after further investigation is carried out (sections 2 and 7 of Schedule 1 and sections 2 and 6 of Schedule 2);
@ @ @ ii. empower the Court of First Instance or the District Court, in the case where a person, who is subject to proceedings for a drug trafficking offence or a specified offence under the OSCO, has absconded and reasonable steps have been taken to ascertain his whereabouts but of no avail, to issue a confiscation order against him (section 3(a) of Schedules 1 and 2)
@ @ @ iii. empower the Court of First Instance or the District Court to fix a period within which a person has to pay under a confiscation order (section 6 of Schedule 1 and section 5 of Schedule 2);
@ @ @ iv. require a person to give information in determining the value of realisable property the subject of a restraint or charging order and make it an offence for a person to knowingly deal in any realisable property in contravention of such an order (sections 8 and 9 of Schedule 1 and sections 7 and 8 of Schedule 2 and section 3(b)(ii) and (iii) of Schedule 3);
@ @ @ v. create a new offence of dealing in realisable property having reasonable grounds to suspect that the property in whole or in part represents a person's proceeds of drug trafficking or an indictable offence (sections 10(a), (b) and (d), 11(b) and 13 of Schedule 1 and sections 9(a), (b) and (d), 10(b) and 11 of Schedule 2); and
@ @ @ vi. increase the penalty for certain offences;
@ @ (b) amend the DT(RoP)O to repeal section 4(4) so that certain statutory assumptions for the purposes of determining whether a person has benefited from drug trafficking and the value of the benefit will also apply to a person convicted of drug money laundering offence (section 4 of Schedule 1); and
@ @ (c) make consequential amendments to the DT(RoP)O and the Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order (Cap. 405 sub. leg.) (section 12 of Schedule 1 and sections 1 and 2 of Schedule 3).
@ @ HKSA made a written submission to the Bill. There were two main issues (section 25 and section 25A of the two Ordinances) that HKSA had serious concerns.

First of all, altering the standard of proof required for a conviction under sections 25 and 25A will mean that the subjective mental state of the accused will play little part in establishing that person's guilt. This could mean that persons who would not have committed any offence under the law as it now stands because they harbour no suspicious about a certain set of circumstances, may well be liable to be convicted in future. This is especially the case in relation to section 25A which currently relies exclusively on a subjective test.

Besides, because of the very broad scope of the Organised and Serious Crimes Ordinance and the failure of the Bill to distinguish the more serious from the less serious offences, unlike e.g. the equivalent legislation in England, the amended Ordinance is likely to become a trap for the innocent and unwary. The implications for accountants and other professionals are likely to be even greater because the courts may have a lower threshold of tolerance for any ignorance on their part.

We are awaiting the Government's Committee Stage Amendments very shortly.

@ 4. Bills Committee on Dutiable Commodities (Amendment) Bill 2000
@ @ There was only 1 meeting held. The objective of the Bill is to amend the Dutiable Commodities Ordinance (Cap. 109) (the Ordinance) to provide for the presumption of dutiability of light diesel oil based on its sulphur contents.

The Administration wish to resume second reading of the Bill on 20 December 2000, and introduce a Committee Stage Amendment to specify 1 February 2001 as the commencement date of the Bill.

@ 5. Bills Committee on Securities and Futures Bill and Banking (Amendment) Bill 2000
@ @ There was only 1 meeting held. The Securities and Futures Bill establishes the twin themes, namely, consolidation and amendment. The Bill consolidates 10 existing Ordinance, including the Securities and Futures Commission Ordinance (Cap. 24); (b) the Commodities a Trading Ordinance (Cap. 250); (c) the Securities Ordinance (Cap. 333). In addition, the Bill seeks to update the regulatory regime for the securities and futures market, bringing it up to international standards where necessary, simplifying and rationalizing procedures where possible and enhancing the system of checks and balances.

The objectives of the Banking Ordinance (Cap. 155) ("BO") are to: (a) to add to the function of the Monetary Authority ("MA") the regulation of business conducted by authorized institutions ("AI") which is not banking business or the business of taking of deposits; (b) to impose a duty on MA to keep a register of persons employed by and acting for exempt AI in their regulated activities; (c) empower the MA to publicly or privately reprimand exempt AI; (d) to enable MA to regulate the financial year end of AI; (e) to require an auditor to report to MA any matter that adversely affects to a material extent the financial position of an AI; (f) to provide for matters relating to the approval by MA, and the appointment by AI, of executive officers; and (g) to empower MA to disclose information relating to exempt AI and their regulated activities.

A submission from HKSA is still awaited. I have urged the HKSA to suggest a policy wide procedure to deal with access to working papers and records from third parties like accountant to provide consistency and fair dealing of all the regulators and departments concerned. Otherwise, our legislation may be littered with many different versions of similar legislation which will cause problem in future.

V. Motion Debate

List attached as Appendix IV. Speeches on my Web Page and highlights will be published in my circulars to members.

VI. Questions

I have asked 3 questions (1 question on the government's effort to assist professionals in exploring development opportunities outside Hong Kong, 1 question on the determination of HOS flat sale prices, 1 question with regard to a proposal to bid holding the next All China Games in Hong Kong) since the last report which are attached as Appendix V. The relevant HKSA Committees may wish to be advised and to consider the replies further.

VII. General Political Background

To present orally.

 

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