Profits Tax is levied on individuals, corporations, bodies of persons and partnerships, in respect of assessable profits arising in or derived from Hong Kong. For the year of assessment 2004-05, the Profits Tax rate for corporations remained unchanged at 17.5% and the rate for non-corporate persons was increased from 15.5% to 16%.

With the economic upturn, Profits Tax assessed in 2004-05 increased by $11.1 billion (21%), as compared with the previous year. Total Profits Tax assessed during the year amounted to $64.2 billion (Figure 5) . Of the total tax assessed, the property and financial sectors together contributed 35.3% (Figure 6) . Further statistics relating to the tax assessed in respect of different business sectors are shown in Schedules 3 and 4.

Compared to the previous year, while the number of assessments made remained very much the same, 23% more tax was assessed during 2004-05 (Figure 7) . Analyses of tax assessed and allowances granted in respect of taxpayers at various income levels are provided in Schedules 5 and 6.

The Department provides venues for e-Seminar and disseminates tax information for employers on the IRD Homepage in order to enhance their understanding of the relevant statutory requirements. The contents include information about completion of Employer's return, employer's obligation, answers to frequently asked questions etc.. Employers can also obtain specimens of completed employer's returns and notifications through the Fax-A-Form service.

A fee is charged for the service on a "cost recovery" basis. Initially, the applicant is required to pay an application fee of $30,000 for a ruling concerning the "Territorial Source Principle", or $10,000 for a ruling on any other matter.

The Department endeavours to provide a ruling within 6 weeks of the date of application, provided that all relevant information is furnished with the application and further consultation with the applicant is not required.

During the year, 77 advance ruling applications were processed (Figure 11) . Most of the applications were for rulings on Profits Tax matters.

A decision of the Board of Review is final, provided that either the taxpayer or the Commissioner may, pursuant to section 69(1) of the Inland Revenue Ordinance, make an application requiring the Board to state a case on a question of law for the opinion of the Court of First Instance.

During 2004-05, the Court of First Instance ruled on five cases relating to the Inland Revenue Ordinance. Decisions in favour of the Commissioner were given by the Court in respect of appeals concerning the taxability of profits from the sale of property, the source of trading profits, a refusal of the Board to grant an extension of time to allow a taxpayer to appeal against a determination of the Commissioner, and the taxability of royalties. Appeals to the Court of Appeal have been lodged in respect of the latter two decisions. In a case concerning the taxability of termination payments received by an employee, an appeal by the Commissioner against the decision of the Board was partially allowed by the Court.

During the year, the Court of Appeal handed down one decision, in favour of the Commissioner, relating to the Ordinance. The case was concerned with the issue of whether the provisions of the Ordinance concerning personal assessment in the case of a married couple were inconsistent with the Basic Law.

The Court of Final Appeal also handed down a decision relating to the Ordinance. The case involved the issue of whether fees in respect of an underwriting contract relating to the sale of property in the Mainland of China were chargeable to Profits Tax. The Court found in favour of the Commissioner.

Figure 14 sets out statistics concerning appeals to the Courts for 2004-05.

The Department aims to maintain an efficient business registration system. Every person carrying on business in Hong Kong must register the business and pay the required fee. Registered businesses may renew their registration certificates either annually or once every 3 years. The registration fee and levy for the Protection of Wages on Insolvency Fund are respectively $2,000 and $600 if paid annually, or $5,200 and $1,800 if paid every three years. Up to 31 March 2005, 10,046 businesses had taken the 3-year certificates.

As the economy was picking up, the total number of new and re-opened registrations in 2004-05 was 12,704 higher than that of the previous year while the number of cancelled registrations increased slightly by 1,484 (Schedule 8). The total number of active registrations recorded a growth of 22,057 for the year (Figure 15) . There was a corresponding increase in the number of certificates issued, leading to an increase of $115 million in the business registration fees collections (Figure 16) .

Under the Business Registration Ordinance, a small business with average monthly sales or receipts below a specified limit ($10,000 for a business mainly deriving profits from the sale of services or $30,000 for other businesses) could apply for exemption from payment of the fee and levy. The number of total exemptions granted during the year was 15,924, representing an increase of 16% from the previous year.

Where an application for exemption is not allowed, the business operator may appeal to the Administrative Appeals Board. 8 appeals were received by the Board in 2004-05, of which 6 were subsequently withdrawn by the appellant (Figure 17) .

Estate Duty is charged on that part of a deceased person's estate situated in Hong Kong. The threshold for levying duty is $7.5million and the duty rates range from 5% to 15%, depending on the value of the estate.
 

Estate Duty of $1.468 billion was collected during the year (Schedule 11), an increase of $13 million (0.9%) compared with that of the previous year.

Estate Duty is payable on delivery of an estate duty affidavit or account (or within 6 months from the date of the deceased's death, whichever is the earlier). $1.265 billion was received during the year in advance of the issue of formal assessments (Schedule 12) .

Betting Duty is charged on bets made on totalisators at race meetings conducted by the Hong Kong Jockey Club, on the proceeds of lotteries conducted by the HKJC Lotteries Limited and on the net stake receipts from the conduct of authorised betting on football matches by the HKJC Football Betting Limited.

In 2004-05, the rates of duty remained unchanged (Figure 22) .

Hotel Accommodation Tax is imposed on hotel and guesthouse accommodation at the rate of 3% of the accommodation charges paid by guests and is collected quarterly in arrears.

In 2004-05, there was an increase in the number of hotels, boarding houses and taxable rooms (Figure 24) . Due to the growing number of visitors, the average room occupancy rate increased by 19.9% (Figure 25) , and the room charges also increased (Schedule 14) . Total tax collected in the year was 59% more than that of the previous year (Figure 26) .

There are two sets of circumstances under which Tax Reserve Certificates are purchased.

The first applies to taxpayers who wish to save for the payment of their future tax liabilities. Two service schemes are offered to these taxpayers: the "Electronic Tax Reserve Certificates Scheme" for all taxpayers and the "Save-As-You-Earn" (SAYE) Scheme for civil servants and civil service pensioners. Under the Electronic Tax Reserve Certificates Scheme, certificates can be purchased using various electronic means, i.e. by bank autopay, telephone, the Internet, public information kiosk and bank ATM. Under the SAYE Scheme, certificates are purchased by civil servants and civil service pensioners through monthly deductions from their salaries/pensions. Interest is payable on the certificates when they are redeemed for settlement of tax liabilities, based on the interest rate prevailing at the time of purchase, for a maximum period of 36 months from the date of purchase.

In 2004-05, the number and amount of certificates sold under the SAYE Scheme decreased by 10% and 12% respectively (Schedule 15) . While there was a decrease of 51% in the number of certificates sold under the Electronic Tax Reserve Certificates Scheme, a single sizeable sale boosted the amount under the Scheme by 240% as compared with the previous year. The total amount of certificates sold increased by 157% (Figure 27) .

The second situation applies to taxpayers who object to tax assessments and are required to purchase Tax Reserve Certificates in respect of the tax in dispute. Such certificates are used to settle any tax found payable upon the finalisation of the objection or appeal. Interest is only payable on the amount, if any, subsequently required to be repaid to the taxpayer, and is computed at floating rates ruling over the tenure of the certificate.