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21st 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):

The Committee held 14 meetings and 7 days of public hearings before I tabled the PAC Report No. 35 at LegCo on 14 February 2001. During the public hearings, the Committee heard evidence from a total of 38 witnesses, including 5 Bureau Secretaries and 10 Heads of Department.

The Report recommends, amongst other measures, wider disclosure of Government Accounts. It received extensive support and press coverage.

Examination of the subject (PAC Report 35, Chapter 10 ¡§Construction of Two Bridges¡¨) has commenced. We have held one further day of public hearing to receive evidence on this subject and are making the best endeavours to finalise our report to the LegCo at the earliest opportunity.

¡@ 2. Financial Affairs Panel:

The Panel held 5 meetings to date and the relevant agenda are attachedas Appendix I.

On 8 March 2001, the Chairman of the Securities and Futures Commission (SFC), Mr. Andrew L T SHEUNG, has provided the Panel with a report on the Securities and Futures Commission Budget for 2001-02. The SFC expected to report a $52.88 million loss for the 2001-2002 fiscal year.

The Chief Executive of HKMA also briefed the Panel on a regular basis in the 2000-01 session on 11 January 2001. He will brief the Panel on HKMA Annual Report 2000 on 3 May 2001.

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

¡@ 3. Economic Services Panel:

The Panel held 8 meetings since the last report. The Panel focused on the Travel Agents (Amendment) Bill 2001, the legislative proposals to streamline ship registration and improve freight container handing, stacking and transportation safety, Hong Kong Electric Co. Ltd.'s proposed tariff revision, the replacement of route surveillance radar and enhancement of the air traffic control systems, overseas electricity market restructuring experience, directorate staff for electricity market review, promotion of international maritime safety - amendment of subsidiary legislation.

It discussed the Container terminals and port facilities in Hong Kong, maintenance and transfer of title of gas pipes laid along external walls of premises, Tung Chung cable car project, and Infrastructure for Penny's Bay Development, Package 1 - Yam O Tuk Fresh Water Service Reservoir and Associated Works.

It also reviewed the Consumer Council Ordinance, the re-organization of the Tourism Commission, Infrastructure of Penny's Bay Development, Package 2, and the review of air traffic control operations by the United Kingdom Civil Aviation Authority

There were 3 special meetings to receive a briefing by the Administration on the container handling charges and mid-stream surcharge.

¡@ 4. Information Technology and Broadcasting Panel:

The Panel held 4 meetings to date. The Panel discussed the interconnection issues, software assets management in Government, the establishment of a Computer Emergency Response Centre (CERC) in Hong Kong and proposed revision to the Draft Generic Codes of Practice for Television and the Draft Radio Codes of Practice.

It also discussed interconnection issues, the administration of Internet domain names in Hong Kong, Web access by disabled persons, and Putonghua broadcasting as well as proposal to enhance the directorate structure of the Office of Telecommunications Authority.

There is also a special meeting to receive a briefing by the Administration on the licensing framework for third-generation mobile services.

¡@ 5. Education Panel:

The Panel held 5 meetings to date. The Panel mainly focused on the reservation of school sites, curriculum reform, library grant for kindergartens and child care centres as well as Education Resource Centre, the reservation of school sites, regulation of tutorial schools, recurrent funding for the University Grants Committee-funded institutions for the 2001/01 to 2003/04 triennium, book grant for teachers, injection of new funds to the Language Fund.

It studied School-based management, to discuss with the Administration on "Recurrent funding for the University Grants Committee (UGC)-funded institutions for the 2001-02 to 2003-04 triennium", Proposed Code of Practice on Education under the Disability Discrimination Ordinance issued by the Equal Opportunities Commission.

It also focused on Education issues in the Report of the Hong Kong Special Administration Region of the People's Republic of China (HKAR) in the light of the International Covenant on Economic, Social and Cultural Rights (ICESCR), the financial proposal on support measures to increase post-secondary education opportunities, financial proposal for promoting parent education, financial proposal for school-based uniformed/youth group enhancement scheme, proposed creation of a permanent chief treasury accountant in the Education Department as well as two-mode teaching.

¡@ 6. Environmental Affairs Panel

I have resigned from the Panel due to clash with other meetings.

¡@ 7. Finance Committee and House Committee:

There were 13 meetings of Finance Committee (including 6 special Finance Committee meetings on the Draft Estimates of Expenditure 2001-02 comprising 18 sessions over four days from 20 to 23 March 2001) and 14 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 23 March 2001 is attached as Appendix III.

III. Bill Committees Joined

¡@ 1. Inland Revenue (Amendment) Bill 2000

I was elected Chairman of this Bills Committee. 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.

On 2 March 2001, LegCo Members decided that the slot currently taken up by the Bills Committee should be released to enable another Bills Committee to be formed to scrutinize other bills on the waiting list. The Bills Committee would only be reactivated upon the Administration's request and subject to the availability of a Bills Committee slot at the time.

¡@ 2. Rehabilitation Centres Bill

The Bills Committee has held 4 meetings with the Administration. The objective of the Bill is to provide for the establishment of rehabilitation centres for the detention and rehabilitation of offenders of or over 14 and under 21 years of age and for related matters.

In order to obtain first-hand information on the rehabilitation and correctional programmes for young offenders, member of the Bills Committee have made a visit to the O Pui Shan Boy's Home of SWD, as well as the Lai King Training Centre and Sha Tsui Detention Centre of CSD. The Bills Committee has also considered a written submisison from the Law Society of Hong Kong.

The Bill does signify a new step in tackling juvenile delinquency. The Second Reading debate on the Bill will be resumed at the LegCo on 2 May 2001.

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

There were 3 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 Sched ules 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

The Bills Committee has held one meeting with the Administration. The object of the Bill is to add a presumption provision in the Dutiable Commodities Ordinance to be effect that, subject to specific exceptions, light diesel oil with a sulphur content in excess of the statutory stipulated amount is presumed to be dutiable.

The Bill was passed by the LegCo on 20 December 2000.

¡@ 5. Bills Committee on Securities and Futures Bill and Banking (Amendment) Bill 2000

There were 15 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.

HKSA made 2 significant submissions to the Bill. The more important proposals are highlighted below:

Considering Insolvency Provisions, the Bill seems to accord a higher priority to protecting the interest of the clearing house than that of investors in the event of an exchange participant becoming insolvent. HKSA suggests that the Bill should be amended to give greater protection to investors. Where the law of insolvency is inconsistent with the Bill, the former should prevail as this has been designed to protect the interests of all parties involved in the event of an insolvency.

With regard to the Securities and Futures Appeals Tribunal, it is not clear why certain decisions should be deemed to be "excluded decision" and not be "appealable" to the Tribunal, although an aggrieved person has a right of appeal against an excluded decision to the Chief Executive in Council under clause 225. HKSA suggests that in addition to the power to remit a matter to the Tribunal, the Court of Appeal should have the power to vary a decision of the Tribunal under clause 221;

For the Market Misconduct Tribunal, HKSA is question whether the power of the Court of Appeal to substitute a different order to that of the Market Misconduct Tribunal should be limited to orders made by the Tribunal under clauses 249, 250 and 252. It is important that a full public consultation on the "Safe Harbour" Rules should be conducted before they are formally tabled;

HKSA also considers the Appointment of Auditors. The terms "examination" and "audit" in clause 156 would need to be clarified. Given the wide scope of the powers of examination under clause 156, it is questionable why a decision to appoint an auditor should be an excluded decision under Schedule 7, and therefore not susceptible to appeal to the Securities and Futures Appeals Tribunal;

For Investigations, consideration should be given to excluding under clause 178(1)(b) persons acting bona fide as legal advisers. Otherwise this could deter legal advisers from using their best endeavours to serve the interests of their clients;

Considering the Power to Investigate a Listed Corporation's Ownership, HKSA claims that clause 341, regarding the production of records and evidence to inspectors, is widely drafted. In particular, the duties imposed on officers and agents of a corporation to attend before an inspector and to give the inspector "all assistance in connection with the investigation which they are reasonable able to give" (clause 350(2)(c)) could be onerous. There should be some safeguards to ensure that any demands placed on advisers are kept within reasonable bounds;

For the Use of Audit Working Papers, despite the assurance given by the Administration and the SFC that audit working papers would not be used for "fishing expeditions", there is concern that the inclusion of the words "or may be" in section 172(7)(a) suggests that the SFC could require production of audit working papers without having first given any direction to the corporation which is the subject of investigation; and

Regarding penalties for Non-compliance, HKSA is concern that auditors should be subject to criminal sanctions under section 172(13) for failure to produce working papers or give explanations. While there is the "reasonable excuse" proviso in the legislation, it seems that the threat of heavy criminal penalties could nonetheless be used to enforce onerous or unreasonable requests by the SFC. Consideration should be given as to whether the penalties are appropriate for use against the third parties (such as auditors) who are called upon to assist an investigation.

¡@ 6. Bills Committee on Hong Kong Science and Technology Parks Corporation Bill

The Bills Committee held a total of 3 meetings to discuss the Administration.

The objects of the Bills is to (a) establish a body corporate known as the "Hong Kong Science and Technology Parks Corporation" ("The Corporation"), (b) repeal the Hong Kong Industrial Estates Corporation Ordinance (Cap. 209) and the Hong Kong Industrial Technology Centre Corporation Ordinance (Cap. 431); and (c) dissolve the Hong Kong Industrial Estates Corporation (HKIEC), the Hong Kong Industrial Technology Centre Corporation (HKITCC) and the Provisional Hong Kong Science Park Company Limited (PHKSPCL) and to vest their rights, obligations, assets and liabilities in the Corporation.

After discussion with the Bills Committee, the Administration has accepted a number of members' suggestions and agreed to move Committee Stage amendments (CSAs) accordingly. These CSAS cover technical amendments and improvements to various provisions in the Bills. The major ones include the amend provision to enable public access to information regarding interests declared by members of the Board or a Committee (Clause 10) and the provision to provide for a general description of the duties of the Chief Executive Officer so that the relationship between the Board, the Chairman of the Board and the Chief Executive Officer can be made clearer and more explicit (Clause 14).

The Bill was passed by the LegCo on 4 April 2001.

¡@ 7. Bills Committee on Education (Amendment) Bill 2000

The Bills Committee has held 2 meetings with the Administration to discuss the Bill. The objective of the Bill is to address certain inadequate and obsolescent provisions in the principal ordinance and the Education Regulations. The more important proposals are highlighted below:

  1. The Director of Education will be empowered to delegate to any of his directorate officers his power to exempt certain schools or their owners, managers, teachers or pupils from the Ordinance;

  2. The person recommended by the school management committee to be the principal of a school will be allowed to perform the functions of a principal in the interim period after the recommendation has been submitted to the Director for approval;

  3. The right of appeal in respect of an attendance order (requiring a parent to cause his child to attend school) will be made to the Administrative Appeals Board instead of to the Board of Review which will be dissolved.

The Bill was passed by the LegCo on 4 April 2001.

¡@ 8. Bills Committee on Telecommunications (Amendment) Bill 2000

There were 4 meetings held since the last report. The objective of the Bill is to amend the Telecommunications Ordinance (Cap. 106), as amended by the Telecommunication (Amendment) Ordinance 2000 (36 of 2000), to make provisions in respect of the following matters in preparation for the issue of carrier licences for the third generation ("3G") mobile services and future licensing exercises: -

  1. the determination of the spectrum utilization fees by auction or tender or a combination of auction or tender; and

  2. empowering the Telecommunications Authority to regard the spectrum utilization fees arising from a spectrum auction or tender as a determining factor in issuing telecommunications licences and assigning frequencies of the radio spectrum.

The Administration briefed the LegCo Panel on Information Technology and Broadcasting on the Bill on 12 February 2001. At the meeting, members of the Panel considered that the Bill required detailed scrutiny by a Bills Committee having regard to the fact that legal disputes have arisen from the European experience of spectrum auctioning.

¡@ 9. Bills Committee on Dutiable Commodities (Amendment) Bill 2001

The objective of the Bill is to amend the Dutiable Commodities Ordinance (Cap. 109) (the Ordinance) so as to provide a legal basis for the use of a specified electronic service to process applications for dutiable commodities permits.

In this Bill, a new Part IA relating to the use of electronic records and procedures is added. Clause 8 provides for books and documents in non-legible form and clause 12 adds a new section 42A on the proof of contents of electronic record. Other clauses are miscellaneous amendments relating to the use of electronic records generally under the Ordinance.

¡@ 10. Chief Executive Election Bill

There were 3 meetings held since the last report The objects of the Bill are to: (a) provide for the election of the Chief Executive ("CE") in accordance with the Basic Law ("BL"); (b) make provisions on the constitution of the Election Committee ("EC"); (c) empower the Electoral Affairs Commission ("EAC") to supervise the CE election; and (d) provide for miscellaneous amendments.

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 for the back tax recovered by Field Audit Group of Inland Revenue Department, 1 question for the breakdowns of revenue on Profits Tax and Salaries Tax in 2000-01, 1 question regarding the review of Government Financial Reporting Policy 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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