|Will the Basic Law affect the work of accountants?
Eric Li investigates
Some politicians and lawyers claim that Hong Kong has
always been governed under the rule of law. The fact
is, however, that British governors were actually quite
above the laws of the land. Before the handover, Bills
passed by LegCo could be vetoed at will by British governors
who paid no local taxes and their actions were only
answerable to the Queen. Now, for the first time in
our history, Hong Kong has its own mini-constitution.
Since 1 July, the Basic Law has been all-encompassing,
binding the actions of the Legislature, Courts of Justice,
the Chief Executive, his Government and all citizens
alike. We accountants are of course no exception!
The Basic Law was drafted with the intention of preserving,
not changing, the ingredients which make Hong Kong successful.
These ingredients, such as liberty, freedom, the right
to own property, the right to religious freedoms, are
now actually stronger due to being identified and written
into the constitution for the first time. The far-reaching
implications of our new constitutional framework will
probably take years to be fully appreciated.
In 1988, I served as a member of the working group
of HKSA and helped to draft our submission to the Basic
Law Drafting Committee. I believe the working group
made a valuable contribution by pointing out many possible
ambiguities in the legal interpretation of the Basic
Law. The group proposed an evolutionary (rather than
revolutionary) approach to political development and
provided a critical commentary on the drafting of Chapter
Von the economy and some detailed drafting suggestions
on Article 150 which deals specifically with professional
autonomy. We thought then that these were the most crucial
parts of the Basic Law affecting accountants.
When the Financial Secretary delivered the recent Budget
he noted that 44 per cent of the Basic Law's provisions
were designed to lay down the economic rules of the
SAR and to describe how Hong Kong's separate economic
system will continue to flourish. This, for us, is most
In brief, the Basic Law pledges that Hong Kong will
remain a centre for international financial transactions.
It guarantees free flows of trade based on the absence
of exchange controls and tariffs; it prescribes financial
prudence and a low tax regime; it also clearly defines
Hong Kong's future economic autonomy through independent
management of its own resources relying exclusively
on Hong Kong laws. Hong Kong's trade and investments
will also continue to enjoy freedom of movement and
freedom of markets.
The near total economic autonomy conferred to Hong
Kong by the provisions of the Basic Law has already
enabled Hong Kong to qualify for independent membership
of international bodies such as the World Trade Organisation,
the Bank for International Settlements, the Asian Development
Bank, the World Customs Organisation and APEC. The constitutional
framework provided by the Basic Law thus enables Hong
Kong's independent voice to be heard in the global economy.
As accountants, however, we must also deal with specifics.
The specific areas of the Basic Law which affect accountants
also pose some pertinent questions. For example, I am
often asked about the possible limitations or restrictions
of the budgetary process.
The articles of the Basic Law relating to public finances
were conceived more as general policy statements describing
a guiding role for government, rather than the usual
precise legislation capable of withstanding the test
of litigation. It will be difficult for such broad policy
statements to withstand the test of litigation. Let
us look at some examples.
Article 107 states:
The Hong Kong Special Administrative Region shall follow
the principle of keeping expenditure within the limits
or revenues in drawing up its budget, and strive to
achieve a fiscal balance, avoid deficits and keep the
budget commensurate with the growth rate of its gross
The legal interpretation of ambiguous expressions such
as `within the limits of revenues' and `commensurate
with the growth rate' could prove to be quite problematic.
Article 108 states:
The Hong Kong Special Administration Region shall practise
an independent taxation system. The Hong Kong Special
Administrative Region shall, taking the low tax policy
previously pursued in Hong Kong as reference, enact
laws on its own concerning types of taxes, tax rates,
tax reductions, allowances and exemptions, and other
matters of taxation.
How will the court determine what the `low tax policy
previously pursued in Hong Kong' was and how can it
be taken as a reference?
Article 109 states:
The Government of the Hong Kong Special Administrative
Region shall provide an appropriate economic and legal
environment for the maintenance of the status of Hong
Kong as an international financial centre.
Again, how will the court define the attributes of
an `international financial centre' and the `appropriate
economic and legal environment' to be provided?
These few examples give us a clear message. Broadly
speaking, the Basic Law provides a clear understanding
that the same financial management policies which Hong
Kong has followed for many years should remain intact.
However, by using general policy statements rather than
specific provisions to define the limitations and restrictions
applying to budget matters, it allows a lot of, some
would say too much, room for manoeuvre in the actual
year-to-year drafting of budgets.
A Budget Impasse
I have also been asked by fellow accountants and legislators
whether the Provisional Legislature (PLC) has the authority
to reject the 1997-98 Budget? My answer to this is that
technically it would be impossible. To understand the
whole issue it is necessary to go back to the starting
point on how the legislature `passed' a Budget.
The Financial Secretary's Budget speech was actually
delivered in the Second Reading Debate of an Appropriation
Bill which simply moved to endorse, in one lump sum,
the annual expenditure of the Government. This means
that it any Legislative changes to revenue measures,
such as changes in tax rates, are needed, they will
have to be introduced at a later stage by further separate
Bills. Once these laws are passed, the Legislature or
the PLC cannot unilaterally change them again unless
a new Bill is introduced by the Administration.
As the former LegCo passed the Appropriation Bill (and
most of the other Revenue Bills except the one which
aims to raise the duly on fuel), the Budget was therefore
passed after amendment. Once the Budget has been given
legislative back-up, the PLC is not in a position to
`pass' it again or to reverse it unless, of course,
the budgetary laws had been specifically excluded from
adoption by the Standing Committee of the National People's
Congress (NPC) as a contravention to the Basic Law under
art 160. Of course, the NPC took no such decision.
Having studied the legislative procedures, the PLC
decided to simply move a motion debate which gave PLC
members the opportunity to air their views. The results
of a debate like this have no binding effects on the
Administration. Furthermore, the Administration cast
away all doubts regarding the Appropriation and Revenue
Bills passed to enforce the 1997-98 Budget by asking
the PLC to again endorse cl 7(2) of the famous Hong
Kong Reunification Bill which states that `Legislation
enacted in respect of the budget for the 1997-98 financial
year is confirmed'. The Bill was duly passed on 1 July
Some accountants have also correctly pointed out that
a Budget impasse could, under the Basic Law, raise new
and serious constitutional consequences. Article 48(3)
stipulates that one of the main functions of the Chief
Executive is `to sign budgets passed by the Legislative
Council and report the budgets and fiscal accounts to
the Central People's Government for the record'. Article
150 further provides that is `the Legislative Council
refuses to pass a budget introduced by the Government,
and if consensus still cannot be reached after consultations,
the Chief Executive may dissolve the Legislative Council'.
Article 51 then provides for measures to obtain provisional
short-term appropriations but then, according to art
52(3), the Chief Executive must resign under the following
circumstances: `When, after the Legislative Council
is dissolved because it refuses to pass a budget the
new Legislative Council still refuses to pass the original
Bill in dispute'.
These few cases in point have hopefully shed some light
on the powerful checks and balances at play and illustrated
some possible shortcomings of the Basic Law. Because
the `one country two systems' concept is unique and
because the people of Hong Kong are not familiar with
constitutional laws, the implementation of this important
piece of legislation, will no doubt experience some
growing pains in the initial stages.
This process, however, is vital if we are to benefit
from the full protection of this new legislation, which
will eventually provide a solid basis for our freedom
and rights as citizens and also protect the SAR from
any provincial interference.
Provisional Legislative Council Member