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30TH LEGCO REPORT TO HKSA COUNCIL By Hon. Eric K.C. Li I. Highlights To present this report orally. (The Private Member's Bill; SARS impact; the National Security (Legislative Provisions) Bill)
1. Public Accounts Committee (PAC): On the 30th April 2003, the Director of Audit tabled his Report No.40 in the Legislative Council. This Report contains 10 chapters. The Committee, after holding 4 days of public hearings to receive evidence from the Controlling Officers, has now drawn our own independent conclusions. I will present the PAC Report No 40 to LegCo on the 9th July 2003. 2. Financial Affairs Panel: The Panel held 10 meetings including: 3 special meetings to receive a briefing by the Administration on the approach for re-launching Hong Kong in relation to the outbreak of the atypical pneumonia; 2 special meetings to discuss the Report by the Expert Group to Review the Operation of the Securities and Futures Market Regulatory Structure; a special meeting to receive a briefing on the Hong Kong Society of Accountants¡¦ Private Member¡¦s Bill on amendments to the Professional Accountants Ordinance; a joint meeting with the Manpower Panel to follow up issues relating to employees¡¦ compensation insurance to date and the relevant agendas are attached as Appendix I. A proposed list of future agenda items is attached as Appendix II for reference. 3. Economic Services Panel: The Panel held 7 meetings since the last report. The Panel studied the training of tour guides, toys and children¡¦s products: updating of safety standards as well as the avenue of stars It also discussed the petrol filling stations sties ¡V new tendering arrangements, the consultancy study on helicopter services and heliport development as well as the proposed amendments to the Air Navigation (Dangerous Goods) Regulations and the Dangerous Goods (Consignment by Air) (Safety) Regulations. There were 3 joint meetings including a joint meeting with the Panel on Security to discuss the development of the Central Police Station, Victoria Prison and the former Central Magistracy compound into a tourism-themed development and the reprovisioning arrangement of existing users at the compound; a joint meeting with the Panel on Environmental Affairs to discuss with the Administration on the development of renewable energy in the context of the 2003 Scheme of Control Agreement interim Review; a joint meeting with the Panel on Transport to discuss the future development of franchised bus services on Hong Kong Island in relation to the proposed acquisition of Citybus Limited by Chow Tai Fook Enterprises Limited. 4. Information Technology and Broadcasting Panel: The Panel held 4 meetings to date. The Panel discussed the coverage of mobile telephone service and television broadcasting service, the extension and expansion of the IT Easy Link Service as well as to review the policy and regulatory regime for Type II Interconnection. There was a joint meeting with the Panel on Commerce and Industry to study the reorganisation of Commerce, Industry and Technology Bureau. A special meeting was also held to discuss the issues relating to sound broadcasting licence renewal. 5. Education Panel: The Panel held 7 meetings to date. The Panel focused on the enhanced school development and accountability, the follow-up discussion on the proposal of outsourcing adult education courses, the annual adjustment of rates of Operating Expenses Block Grant for aided schools, the study on effective strategies of class and the group teaching in primary schools. It also discussed the Matching Fund for University Grants Committee-funded Institution and the effective strategies of class and group teaching in primary schools as well as the teaching in small classes, the block insurance policy for aided and caput schools as well as the implementation of whole-day primary schooling. There were 3 special meeting held firstly to discuss the problems arising from suspension of classes in kindergartens to prevent the spreading of atypical pneumonia and related issues, secondly to discuss with the Secretary for Education and Manpower the criteria for consolidating high cost and under-utilized primary schools as well as the results of the 2003 Language Proficiency Assessment for Teachers and thirdly to discuss the future provision of association degree programmes in the City University of Hong Kong (CityU). 6. Finance Committee and House Committee: There were 10 meetings of Finance Committee and 12 meetings of House Committee (including a special meeting with the Chief Secretary for Administration to discuss the future timetable for delivering the Policy Address and the Budget as well as the Work of Team Clean). TD of HKSA was kept informed of progress on all Bills on a weekly basis.
1. Inland Revenue (Amendment) Bill 2000 The Bills Committee which I chair is now waiting to recommence on the Administration's request and subject to the availability of a Bills Committee slot at the time. In the light of its long delay, the LegCo House Committee will be following up on the intention of the Government. 2. Companies (Corporate Rescue) Bill At the House Committee meeting on 7 December 2001, the Bills Committee recommended that the scrutiny of the Bill should be held in abeyance to allow time for the Administration to conduct consultation on, and work out the details of, a new proposal based on ideas initiated by myself and refined by HKSA. The House Committee agreed to the Bills Committee's recommendation. In the PAC Report No. 39 delivered of LegCo on 19 February 2003, I made a passing remark to urge the Administration to expedite this task. In response to my concern, the Administration said that it would take time to consult the market to figure out the issue of the employees¡¦ claims. It was still working out new proposals for the bill. 3. Bills Committee on Prevention of Child Pornography Bill The Bills Committee held 16 meetings with the Administration and had made a visit to the Hong Kong Police Computer Forensics Laboratory on 14 January 2003 to better understand how computer forensics investigation and digital evidence recovery would be conducted. The Bills Committee also met with 13 organisations, and had received written submissions from a further four organizations. The Bill will resume the Second Reading debate at the meeting on 9th July 2003. 4. Bills Committee on Land (Miscellaneous Provisions) (Amendment) Bill 2002 The Bills Committee held a total of 14 meetings and had made a site visit to better understand the audit inspections carried out by the Highways Department in relation to the performance of promoters and contractors in excavation. The Bills Committee had received views from the utility undertakers, the construction industry, professional bodies concerned and other interest parties. The Bill aims at encouraging permittees and their contractors to complete excavation works within the permit period, and to bring contractors and all tiers of subcontractors under control. The Bill also seeks to introduce a chagrin and penalty system to recover administrative costs incurred by government departments in processing and monitoring excavation permits based on the ¡§user-pays¡¨ principle. The Bill was passed on 14 May 2003. 5. Bills Committee on Telecommunications (Amendment) Bill 2002 The Bills Committee had held a total of 16 meetings, including 3 meetings to listen to views of the telecommunications industry and other organisations. The Bills Committee had in-depth discussion on a number of controversial issues, such as the regulatory role of Telecommunication Authority (TA) in merger and acquisition (M&A) activities in the telecommunications sector, the checks and balance on TA¡¦s powers and the key aspects of the ¡§Guidelines on the Competition Analysis of Mergers and Acquisitions in Telecommunications Markets¡¨. Although the telecommunications operators had presented divergent views to the Bills Committee at the earlier stage of deliberation, the eight major telecommunications operators had reached a unified view and presented a joint proposal to the Bills Committee at its meeting on 23rd May 2003. The joint proposal eventually forced the Government to concede many important concessions. The Bill will resume the Second Reading debate at the meeting on 9th July 2003. 6. Bills Committee on Companies (Amendment) Bill 2002 The Bills Committee held a total of 26 meetings. Apart from examining the Bill with the Administration, the Bills Committee had also invited views from interested parties. 24 groups, including HKSA, have made written and / or oral representation to the Bills Committee. The Bill sought to implement 17 recommendations of the Standing Committee on Company Law Reform in relation to the rights of shareholders and duties of directors. While members generally supported the principles of the Bill, they were concerned as to how the recommendations would be put into effect, particularly the operational problems raised by the accountancy professions (HKSA), the legal and the commercial sector. To enhance participation of shareholders, the Bill proposed to reduce the existing threshold for circulation of requisitionists¡¦ proposal from not less than 5% of the voting rights or not less than 100 shareholders shares to 2.5% of the voting rights or 20 shareholders. Members were concerned that it would run contrary to the legislative intent if the expenses arising from circulation of requisitionists¡¦ proposals were too high. At members¡¦ request, the Administration agreed to include an undertaking in the speech to be delivered by SFST at the resumption of the Second Reading debate on the Bill that the Administration would examine the issue of cost implications for requisitionists. HKSA made a submission to the Bills Committee, particularly concern about section 158(10) (a) and section 161B, that is, the providing a statutory definition of ¡§shadow director¡¨. Doubt had been cast that in the absence of any requirement for a company to file particulars of its shadow directors, it would be difficult, if not possible, for auditors to include in their reports loans to shadow directors whom they had no knowledge of (section 158 of the Ordinance requires a company to file with R of C particulars of its directors, including shadow directors). According to the Administration, it was in the interest of a company¡¦s shareholders to be provided with information relating to loans etc made by the company to its directors. To this end, section 161B of the Ordinance requires that the accountants that are required to be laid before a company in general meeting should include such information. It also required that the directors should disclose any related matter to the company. In the event that the disclosure requirement is not complied with, the Ordinance places a specific duty on the company¡¦s auditors to include in their reports, as far as they are reasonably able to do, statement giving the required particulars. The policy intent was to limit the extent to which auditors would be required to include in their reports loans to directors to only cases where they are reasonably able to do so. In the light of HKSA¡¦s requests, the Administration agreed to shelve the proposed removal of the requirement for a company to file particulars of its shadow direct with Registrar of Companies. The Administration would also move a CSA requiring any shadow director of a company and any person who had at any time during the preceding five years been a shadow director of the company to give notice in writing to the company of particulars of relevant transactions as may be necessary for inclusion in the accounts of loans to officers. In addition, to address the concern raised by the accountancy profession about the requirement to disclose every relevant transaction in the accounts of loans to officers, the Administration agreed to move CSAs to require disclosure of relevant transactions in aggregate, provided that details of such transactions were entered and maintained in a register of the company for a period of 10 years. The Bills Committee concerned about the allowing companies to insure directors and auditors. The Bills proposed to state explicitly that provisions in a company¡¦s articles or a contract granting exemptions or indemnities by a company to its officers or auditors against liability for negligence, default, breach of duty or breach of trust to the company or a related company shall be void. However, a company might, inter alias, indemnify its officers or auditors in defending any proceedings in which judgment is given in their favour or in which they are acquitted. Concerned had been raised that the proposal to insure auditors against any liability to the company may give rise to conflict of interest on the independent role of auditors as some auditors may tend to relax accounting standards to suit the need of the companies. According to the Administration, the proposal aimed at allowing a company to obtain insurance for directors¡¦ liabilities saves for fraud but that insurance should cover the costs of litigation even if such litigation involves an allegation of fraud of a director. As the existing provisions in the Ordinance concerning indemnity for officers applied equally to auditors, it was considered reasonable to adopt a similar approach under these circumstances. Nevertheless, the Administration was prepared to consult the Hong Kong Society of Accountants (HKSA) if necessary. The Bills Committee had expressed concern that the proposed definition of ¡§conditional sale agreement¡¨ might include the standard agreement for sale and purchase of property by installments. The Administration would move a CSA to better reflect its policy intent to prohibit the taking of possession of the property before full payment of purchase price. The Administration agreed with the Bills Committee that ¡§credit transaction¡¨ should not cover a transaction under which the company leased or hired land or goods to its directors in return for periodic payments and the terms of the transaction were not more favourable than those terms offered at market rate. The Administration undertook to increase the prescribed transaction limit from $500,000 to $750,000 to take account of inflation since 1984. Members had questioned the propriety of extending the prohibition of loans, including quasi-loans and credit transactions, stipulated in the proposed new section 157H of the Companies Ordinance to directors of private companies. The Administration agreed with members that the proposed extension should not apply to a private company, except if it was a member of a group of companies one of which was a listed company. The Administration would move a CSA to this effect. Members were concerned that there were situations where transactions contravening section 157H were valid but unenforceable and had requested the Administration to further consider the issue. In order not to delay the passage of the Bill, the Administration had agreed to include in the speech to be delivered by SFST at the resumption of the Second Reading debate on the Bill an undertaking that the policy and drafting of the provisions on civil consequences of transactions contravening section 157H would be looked into by the Administration and referred to SCCLR. A CSA would be moved by the Administration to the effect that for a one-member company where the member was its sole director, the company could nominate a reserve director who would be deemed to be a director of the company for all purposes upon the death of the sole member and director of the company. The Administration further proposed that under such circumstances, four months would be allowed for making the necessary arrangements. The bill was passed on 2 July 2003. 7. Bills Committee on Stamp Duty (Amendment) Bill 2002 The Bills Committee has held a total of five meetings. The principal object of the Bill is to amend the Stamp Duty Ordinance to implement a proposed electronic stamping system that would remove as far as possible the need for original instruments to be submitted to the Stamp Office for stamping. The Ordinance provided that every instrument chargeable with stamp duty would be presented to the Collector of Stamp Revenue for stamping. Under the current system, all documents presented to the Collector for stamping must be original instruments. However, under the proposed system, applications for stamping might be made without presenting the original instruments to the Stamp office and stamp certificates might be issued by the Collector on line. The bill was passed on 18 June 2003 8. Bills Committee on National Security (Legislative Provisions) Bill The Bills Committee had held 25 meetings, including four meetings to hear the views of 110 organizations and individuals. The Bills Committee had studied in detail the principles and policy issues of the Bill, and had examined the Bill clause by clause and the CSAs proposed by the Administration. The Bill proposed to provide for:
Although the Administration made numerous amendments to water down the impact of the draft bill, it still contained a number of contentious issues such as the concept of proscription of organizations endangering national security; the wide emergency powers for the Police to search without warrant; the vague definition of what constitutes official state secrets and the handling and publication of potentially seditious materials which did arouse spirited oppositions. The Government deferred the Second Reading debate originally scheduled for the meeting on 9th July 2003 after a historic mass rally and a dramatic change in the political arena. 9. Bills Committee on Revenue (No. 2) Bill 2003 I was elected as the Chairman of this Bills Committee. The Bills Committee has held 3 meetings to examine the Bill including one meeting to listen to views of the professional bodies. The objective of the Bill seeks to implement the revenue proposals relating to salaries tax, profits tax and property tax announced in the 2003-04 Budget. During the course of deliberations, some members considered the revenue proposals in the Bill acceptable as most of the proposed tax increases would be implemented in phases over two years and a one-off salaries tax rebate for the 2001-02 years of assessment had been proposed. However, some other members had reservations about the introduction tax increases when the economy was still in the doldrums and the various sectors were yet to recover from the impact of the SARs. There had been concerned about the impact of the removal of exemption of holiday warrants / passages, for salaries tax assessment purpose, on the travel industry. The Administration had clarified that under the proposed arrangement, a holiday warrant / passage would be assessed and subject to salaries tax if it was capable of being converted into money, or it was a discharge of the employee¡¦s personal liability to pay for the passage. As regards expenses for business trips in the performance of a taxpayer¡¦s duty as an employee, this would not be regarded as employment income for the purpose of salaries tax assessment. If a business trip was combined with a holiday journal, an apportionment of the holiday and non-holiday portions according to circumstances might be required. To address member¡¦s concerns, the Inland Revenue Department would issues a Departmental Interpretation and Practice Note to provide guidance on the basis for such apportionment. The Administration would give an undertaking to prepare the Note at the resumption of Second Reading debate. The Bill also sought to increase the deeming rate of assessable profits from 10% to 30% of the payments received by non-residents in the form of royalties or licence fees. As the Bill also sought to increase the profit tax rate for corporations from 16% to 17.5%, the effective rate of the withholding tax after amendments would become 5.25% (i.e. 30% * 17.5%). The Bills Committee had met with deputations from the film and music record industries, and they had point out that the proposals would increase the operational costs of local companies and weaken their competitiveness. However, the Administration had advised that the effective tax rate of 5.25% on royalties paid to non-residents still compared much lower than the effective rates for comparable tax currently in force in neighbouring jurisdictions. The Bills Committee had sought clarification from the Administration on issues such as double taxation of local film distributors in connection with their purchase of the rights to distribute films in Hong Kong and in neighbouring countries. The Administration would move CSAs in response to members¡¦ concerns, and the Hon. Sin Chung-kai would also move CSAs to clauses 10 and 11 of the Bill. The Bill was passed on 25 June 2003. 10. Bills Committee on Betting Duty (Amendment) Bill 2003 The Bills Committee had held a total of 12 meetings (15 two-hour sessions) with the Administration, and met with 82 deputations and individuals at four of these meetings. The Bills Committee also discussed with Hong Kong Jockey Club the licensing conditions and preparatory work for the conduct of football betting at one of the meetings. The objective of the Bill is to amend The Betting Duty Ordinance (Cap. 108) (¡§the Ordinance¡¨) to:
The Bill will resume the Second Reading debate at the meeting on 9th July 2003.
List attached as Appendix III. In addition, I have written a ¡¥Letters to Hong Kong¡¦ on 8 June 2003 for the RTHK. Speeches on my Web Page and highlights will be published in my circulars to members.
I have asked 3 questions: passenger clearance procedures at boundary crossings; expenditure on waste separation and recovery programme; road excavation works on pavements along Nathan Road and King¡¦s Road since the last report which is attached as Appendix IV. The relevant HKSA Committees may wish to be advised and to consider the replies further.
To present this Report orally. (Executive Council reshuffle; Relations with Central Government; CEPA development) |
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