- 1 - 16th November, 2004 1st LEGCO REPORT TO THE HKICPA COUNCIL BY THE HON. MANDY TAM I. Preamble This is my first report to the HKICPA Council since I was elected as the LegCo representative for accountancy profession on 12th September 2004. According to the Legislative Council Ordinance (Cap. 542), I assumed the office of Member of the Legislative Council on 1st October 2004 and was sworn in at the first meeting of the 2004-05 legislative session on 6th October. In the new session, apart from the House Committee and the Finance Committee, which are constituted by all LegCo Members, I joined in 1 select committee and 4 policy panels. They are :- Public Accounts Committee; Panel on Constitutional Affairs; Panel on Economic Services; Panel on Financial Affairs; and Panel on Home Affairs. II. Committees and Panels 1. Public Accounts Committee (PAC) I was elected as Deputy Chairman of the PAC, at the House Committee meeting on 15th October, for a term of 4 years. The Chairman of PAC is Dr. Hon. Philip WONG Yu-hong.
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16th November, 2004
1st LEGCO REPORT TO THE HKICPA COUNCIL
BY THE HON. MANDY TAM
I. Preamble
This is my first report to the HKICPA Council since I was elected as the LegCo
representative for accountancy profession on 12th September 2004. According to the
Legislative Council Ordinance (Cap. 542), I assumed the office of Member of the
Legislative Council on 1st October 2004 and was sworn in at the first meeting of the
2004-05 legislative session on 6th October.
In the new session, apart from the House Committee and the Finance Committee,
which are constituted by all LegCo Members, I joined in 1 select committee and 4 policy
panels. They are :-
Public Accounts Committee;
Panel on Constitutional Affairs;
Panel on Economic Services;
Panel on Financial Affairs; and
Panel on Home Affairs.
II. Committees and Panels
1. Public Accounts Committee (PAC)
I was elected as Deputy Chairman of the PAC, at the House Committee meeting on
15th October, for a term of 4 years. The Chairman of PAC is Dr. Hon. Philip
WONG Yu-hong.
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There was no PAC meeting held since the beginning of the current session, awaiting
Report No.43 of the Director of Audit on the results of value for money audit to
be laid before the LegCo on 24th November. The next PAC meeting is now
scheduled on 26th November.
Tentative timetable of the PAC meetings and hearings is attached as Appendix 1.
2. Panel on Financial Affairs
The Panel has held 3 meetings and the relevant agenda were attached as Appendix 2.
The first meeting was held on 12th October, and Hon. Bernard CHAN and Hon.
Ronny TONG Ka-wah were elected as Chairman and Deputy Chairman,
respectively, for 2004-05 session. At the same meeting, I proposed that it was high
time for the Administration to conduct an overall review of Inland Revenue
Ordinance (IRO) (Cap. 112). Hence, I suggested that the Panel should discuss the
item within the current session. A copy of my letter to the Panel Chairman
expressing my suggestions was attached as Appendix 3.
At the Panel meeting on 1st November, the Financial Secretary (FS) the Hon.
Henry TANG gave briefing to Members on the revenue proposal for the
preparation of 2005-06 Budget. A summary of FS’s proposal was attached as
Appendix 4.
My concern is whether it is the right time to introduce the Goods and Services Tax
(GST) under current economic situation and atmosphere, although I agree with the
concept and principle of GST being a stable source of income to broaden the tax
base. The public, as well as the accountancy profession, also concerned about the
implication of the proposed Capital Gain Tax (CGT) and World-wide Tax (WWT)
which may discourage the foreign investors from operating their business in Hong
Kong. I will suggest the FS to abandon the idea of introducing CGT and WWT at
this moment.
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The Panel also studied on the work of the Hong Kong Monetary Authority and the
draft Citibank (Hong Kong) Limited (Merger) Bill (a private Member’s bill to be
introduced by Dr. Hon. David LI).
Another special meeting was held on 10th November. The Administration gave
briefing to Members on the proposed amendment to the Securities and Futures
Ordinance (Cap. 571) and on the Personalized Vehicle Registration Marks Scheme
to be contained in the Revenue Bill 2005.
The Securities and Futures (Amendment) Bill is expected to gazette in December or
in the first quarter of 2005. The purpose of the bill is in line with good corporate
governance practice and to improve the Securities and Futures Commission’s
(SFC) governance structure such that the Commission is led by a non-executive
chairman while the executive arm is headed by a chief executive officer. At the
meeting, I urge the Administration to consider that the proposed non-executive
chairman of SFC should be a full-time post while his appointment should be
transparent and should avoid the conflict of interest with the commercial sector in
order to maintain the confidence of Hong Kong’s stock market.
Meanwhile, the Estate Duty Review Consultation, conducted by the Financial
Services and the Treasury Bureau, had just been closed on 20th October. It is
expected that the Panel will further discuss the outcome of the consultation at
future meetings. A proposed list of future agenda items is attached as Appendix 5
for reference.
3. Panel on Economic Services
The Panel has held 2 meetings. Hon. James TIEN Pei-chun and Hon. Abraham
SHEK Lai-him were elected as Chairman and Deputy Chairman, respectively, for
2004-05 session, on 12th October.
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At the Panel meeting held on 25th October, Members studied the submission of
Hong Kong and China Gas Company Limited on planned use of natural gas as a
feedstock for production of Towngas and the amendment to the Air Transport
(Licensing of Air Services) Regulations. The Administration also gave briefing to
Members on the Heritage Tourism Development Project at the Central Police
Station Compound.
4. Panel on Constitutional Affairs
The Panel has held 2 meetings. Dr. Hon. LUI Ming-wah and Hon. Jasper TSANG
Yok-sing were elected as Chairman and Deputy Chairman of the Panel on 12th
October. Members of the Panel were keen to review on the constitutional
development after 2007.
At the Panel meeting on 18th October, Members argued on procedural matters
whether the Panel should put forward Dr. Hon. Fernando CHEUNG Chiu-hong’s
motion on urging the government to call a referendum to collect the views of the
Hong Kong people on the issue of universal suffrage for elections of 2007 and
2008. There was no conclusion and Members agreed to adjourn the meeting until
15th November.
5. Panel on Home Affairs
I was elected as Deputy Chairman of the 2004-05 session of the Panel on 12th
October. The Chairman of the Panel is Hon. Tommy CHEUNG Yu-yan. At
the first meeting, I proposed that the Panel should discuss on the following 3 items
in the future meetings.
(a) Being one of the co-signers of the “Hong Kong Core Value”, I suggested that
the Panel may discuss how the government and LegCo can do to help
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promote and safeguard core values, taking into account the observations and
recommendations of the latest Citizens Hearing Panel Report. (see
http://www.hkcorevalues.net )
(b) I invite the Administration to give briefing on the proposed Building
Management (Amendment) Bill after the Chief Secretary for Administration
(CS) the Hon. Donald TSANG announced the legislative programme at the
LegCo sitting on 13th October. In addition, section 28 of the Building
Management Ordinance (Cap. 344), which requires the Owners’
Incorporations purchase insurance on mandatory basis in respect of the
buildings and the common parts, as amended by the Building Management
(Amendment) Ordinance 2000, has not been enacted after it was passed by the
LegCo 4 years ago. I seek the Administration’s explanation on the reason
why the law could not be enacted and whether there was any legal or technical
problem to hold on the enactment..
(c) A major property management company had closed down in the previous year
causing financial losses to property owners concerned. I pointed out that at
present a property management company was only required to apply for
business registration to operate and property owners had little protection
under the existing regulatory system. I suggested that the Panel should
discuss with the Administration the need to regulate property management
companies by legislation.
The second meeting of the Panel was held on 9th November and Members studied
on the consultation paper entitled “Legislating against Racial Discrimination” and
the review of built heritage conservation policy.
6. The House Committee
The House Committee has held a total of 6 meetings. Hon. Miriam LAU Kin-yee
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and Hon. Fred LI Wah-ming were elected as Chairman and Deputy Chairman,
respectively, for 2004-05 session, on 6th October.
Elections of Members of the Public Accounts Committee and the Rules of
Procedures Committee were conducted at the Committee meeting on 15th October.
At the same meeting, Members agreed to form 2 subcommittees to handle (i)
Members’ remuneration and operating expenses reimbursement, and (ii) mechanism
for handling complaints and allegations concerning Members’ operating expenses
reimbursement claims. Members also agreed to further study the establishment of
protection retirement scheme for Members.
At the meeting on 29th October, the Committee conducted the election of
Members of the Legislative Council Commission as well as the nomination of
LegCo Members to governing bodies of educational institutions and advisory
bodies – they are (i) Disaster Relief Fund Advisory Committee; (ii) Po Leung Kuk
Advisory Board; (iii) Tung Wah Group of Hospitals Advisory Board; (iv) the
Council of The Chinese University of Hong Kong; (v) the Court of the University
of Hong Kong; and (vi) English School Foundation.
7. The Finance Committee
The Committee has held one and its first meeting of the current session on 6th
October. Hon. Emily LAU and Hon. CHAN Kam-lam were elected as Chairman
and Deputy Chairman of the Finance Committee., respectively, for 2004-05 session.
The second meeting of the Committee was originally scheduled on 5th November
but was subsequently cancelled as there was no item to be considered.
III. Bills Committees Joined
1. Bankruptcy (Amendment) Bill 2004
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This bill was gazetted on 8th October and was introduced to the LegCo on 13th
October. The Bills Committee has held its first meeting on 3rd November and I
was elected as Chairman of the Committee. The membership list is attached as
Appendix 6.
Miss Emma LAU, Deputy Secretary for Financial Services and the Treasury
(Financial Services), Mr. E.T. O’Connell, the Official Receiver, and other 4
Government Officials attended the first meeting and gave briefing on the Bill.
The main purpose of the Bill is to amend the Bankruptcy Ordinance (Cap. 6) to
empower the Official Receiver with the authority to appoint directly a private-sector
insolvency practitioner (PIP) to handle summary bankruptcy cases, without the
need for convening a creditors’ meeting which is time consuming and impracticable
given the large number of cases.
At the meeting, Members concerned about the service quality of PIPs, the
tendering procedures and the setting up of guideline to measure the living standard
of the person being bankrupted.
The Committee has agreed to invite the public to give views on the Bill. Deadline
for submission will be on 25th November. The meeting with deputations is now
scheduled on Wednesday, 15th December.
2. Companies (Amendment) Bill 2004
This bill was gazetted on 8th October and was introduced to the LegCo on 13th
October. The Bills Committee has held its first meeting on 8th November. Hon.
Audrey EU was elected as Chairman of the Bills Committee. The membership list
is attached as Appendix 7.
Miss Emma LAU, Deputy Secretary for Financial Services and the Treasury
(Financial Services), Mr. Paul F. Winkelmann, Chairman of the Financial
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Accounting Standards Committee of the HKICPA, Mr. Simon Riley, Technical
Director (Financial Reporting) of the HKICPA, and other 4 Government Officials
attended the first meeting and gave briefing on the Bill. The proposal in the Bill
will make the current company law more business-friendly and ensure that the
Companies Ordinance (Cap. 32) continues to provide Hong Kong with the
commercial legal infrastructure commensurate with its status as a major
international commercial centre. The bill amends the definition of “subsidiary”
for the purposes of group accounts is expected to constitute little or no compliance
burden on companies in general.
At the meeting, Members concerned whether there would be any loophole created
by the amendment bill in respect of the Inland Revenue Ordinance (Cap. 112) and
the Estate Duty Ordinance (Cap. 111). Members also asked the Administration to
clarify whether those subsidiary companies registered in Mainland and overseas, or
jointly owned by other overseas companies, are within the scope of the bill.
Another concern was the discretion for directors to apply the “true and fair view
override” provisions without more specific guidance and without the reference to
“special circumstances”. Some views urge the HKIPCA to formulate practical
guidelines on the application of the relevant provisions.
The Committee has agreed to invite the public to give views on the Bill. Deadline
for submission will be on 30th November. The meeting with deputations is now
scheduled on Thursday, 16th December.
IV. LegCo sittings and Motion Debates
There were a total of 6 sittings and 1 Chief Executive’s Question and Answer
Session. I rose to speak at Hon. CHAN Yuen-han’s motion on “Minimum wage,
maximum working hours” (13th October), Hon. Fred LI Wah-ming’s motion on
“Enacting a fair competition law” (20th October) and Hon. WONG Kwok-hing’s
motion on “Civil service policy”. My opinion on the minimum wage and
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maximum working hours had attracted a wide range of public interest. I don’t
agree on the proposal to legislate on maximum working hours with unique
standard as different professions have their respective norms on working times and
procedures. I suggest that the implementation of maximum working hours
should be in accordance with the different situations of different professions on
voluntary basis.
At the sitting on 13th October, the CS announced the statement on the
Administration’s 2004-05 legislative programme. There are a total of 36 bills to
be introduced to LegCo in the current legislative session in which 8 of them have
connections with the accountancy profession. They are :-
Bankruptcy (Amendment) Bill 2004;
Companies (Amendment) Bill 2004;
Companies (Amendment) Bill 2005;
Independent Investigation Board and Financial Reporting Review Panel Bill;
Inland Revenue (Amendment) Bill 2005;
Revenue Bill 2005;
Securities and Futures (Amendment) Bill 2004; and
Securities and Futures (Amendment) Bill 2005.
The CS reiterated that the Administration had pledge to safeguard Hong Kong’s
position as an international financial centre and the premier capital formation
centre of China. In this regard, we need to upgrade continuously the quality and
integrity of our financial markets to keep abreast with the best standards and
practices among the most developed economies.
The full programme list was attached as Appendix 8 for reference.
In early October, the Administration announced the appointment of Mr. Anthony
WU of Ernst and Young (EY) to succeed Dr. LEONG Chi-hong as the Chairman
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of the Hospital Authority (HA). At the Chief Executive’s Question and Answer
Session on 14th October, I asked the Chief Executive (CE) the Hon. TUNG
Chee-hwa (i) while Mr. WU is not a full-time chairman of HA so would his
personal business affect his management of the authority, and (ii) whether there is
any way to avoid the conflict of interest on Mr. WU’s personal business and the
authority?
Mr. TUNG said the past chairmen of HA did not work full-time and he believed
in Mr. WU’s experience in senior administration and his thorough understanding
of the authority’s financial situation. In response to my second question, Mr.
TUNG agreed that I raised a good question and he would look into the conflict of
interest issue. Soon later, the HA clarified that it has no business connections
with EY.
A list of LegCo motion debates was attached as Appendix 9.
V. Other Related Activities
Having assumed the office of LegCo representative, my first task is to build up the
working relationship with the HKICPA and other organizations in accountancy
profession. I also met with different bureau secretaries and senior government
officials to exchange views on various public policies.
On the other hand, the FS will deliver his next budget speech on 16th March 2005.
I, together with other 5 LegCo Members, will meet the FS on 19th November for
the purpose of budget consultation after he announced his revenue proposals at
the Financial Affairs Panel meeting on 1st November. It has been the usual
practice since 1995 for the FS to consult LegCo Members in the course of drawing
up the Budget. FS usually consulted Members on expenditure proposals in June
and on revenue proposals towards the last quarter of each year.
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In view of the FS’s revenue proposal attracting wide public concern and having
very close connections with the IRO review, I will meet Mr. Alan Lai, Permanent
Secretary (Treasury) of the Financial Services and the Treasury Bureau, on 12th
November to discuss the issues on technical and practical basis. I will also invite
other taxation experts in the profession to attend this meeting in order to push the
Administration to listen the views of the professional accountants.
Hon. Mandy TAM’s Office
9th November 2004
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Appendix 1
Public Accounts Committee (As at 27 October 2004)
TENTATIVE timetable for the Public Accounts Committee to consider the Director of
Audit’s Reports on the Accounts of the Government of the Hong Kong Special
Administrative Region for the year ended 31 March 2004 and on the results of value for
money audit (Report No. 43):
Stage
Date
(1) The Director of Audit presents his Reports to the President of the Legislative Council
29 Oct 2004 (Fri)
(2) The Clerk, PAC, on Chairman’s instruction, issues letter to the Director of Audit requesting the provision of executive briefs on the topics covered in the Director of Audit’s Report No. 43
5 Nov 2004 (Fri)
(3) Tabling of the Director of Audit’s Reports in the Council and presentation of the Reports and executive briefs to PAC members
24 Nov 2004 (Wed)
(4) Meeting of the PAC with the Director of Audit to discuss details of the public hearings, to consider topics for investigation, and to decide lead questions to be put to Controlling Officers
*26 Nov 2004 (Fri)
(5) Briefing sessions on the topics covered in the Director of Audit’s Report No. 43
29 (Mon), 30 (Tue) Nov & 1 (Wed) Dec 2004
(6) PAC meets to consider topics not recommended for investigation
2 Dec 2004 (Thur)
(7) PAC holds public hearings to receive evidence from Controlling Officers
(12) Tabling of PAC Report No. 43 in the Council 23 Feb 2005 (Wed)
Note: * These internal meetings will be held from 8:30 am to 10:30 am.
Conference room reserved from 9:00 am to 1:00 pm.
These internal meetings will be held from 10:45 am to 12:45 pm.
※ Unless specified, public hearings will start at 9:00 am and end at 1:00 pm.
# Reserved for second public hearing(s), if necessary.
G:\PAC\General\Tim43.doc
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Appendix 3
28th October 2004
Hon. Bernard Chan, JP
Chairman, LegCo Panel on Financial Affairs
Dear Bernard,
Review of Inland Revenue Ordinance (Cap. 112)
At the first panel meeting on 12th October 2004, I propose to discuss the
review of Inland Revenue Ordinance (IRO) during this legislative session. The
details are as follows :-
1. Penalty regime under section 82A
The penalty regime under section 82A gives the Inland Revenue Department (IRD)
too much discretion to impose additional tax. Although it is stated in section
82A(1) that the amount of additional tax should not exceed treble of the amount
of tax undercharged and IRD has also set out in its website its policy of how to
raise additional tax. Some parameters need to be set out in the IRO itself or as a
regulation made under the IRO. The level of additional tax should be linked to
the period of delay of payment of tax, the number of repeated offences and
presence of mitigating circumstances. A lot of appeals on additional tax have
been made to the Board of Review in the past and I believe this is a waste of the
Board's time (three professional members and a clerk have to sit for a hearing)
hearing in most cases frivolous amounts. If the IRD’s power could be fettered,
this will definitely waste the society’s resources.
2. Sections 61 & 61A
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Sections 61 and 61A give very convenient powers to the IRD to disregard / ignore
transactions which are artificial or carried out for the main purpose of reaping a tax
benefit. Transactions with commercial substance are ignored by the IRD simply
because of their very wide interpretation and application of these sections. These
sections are quite antiquated, rather we should try to legislate for specific
anti-avoidance provision. The general approach / policy towards anti avoidance or
overly aggressive tax planning, I believe, should be left for the court to decide.
3. Carrying back of tax losses
The current tax system only allows tax losses to be carried forward without any time
limit, but does not allow any carrying back of tax losses to prior years. As such,
there is no tax relief for companies/individuals, to enable them to obtain any tax
benefits/incentives when currently making tax losses, but having paid tax in
previous years when profits were made. Carrying back tax losses would allow
companies to claim tax refunds.
4. Double deduction of expenses for companies employing new staff members
In Hong Kong, there is no double deduction of expenses, such as staff wages.
However, in Singapore, the tax system allows deduction for tax purposes for certain
expenses incurred by Singapore companies with a view to encouraging the
development of certain industries. Accordingly, Hong Kong could adopt such an
approach by giving double deductions to companies employing new staff, for
example, school leavers or new starters, for the first two years’ operational expenses,
so as to encourage companies to take on more staff members (to create more job
opportunities) with lower costs.
5. Other technical suggestions
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(a) The IRD may consider to increase the penalty in order to enhance the correct
filing.
(b) It is suggested that the Commercial Building Allowance (CBA) and the
Industrial Building Allowance (IBA) should be computed on the cost of purchase
instead of the cost of construction, as the latter may be based on out-of-date data
and may not be easy to be evaluated.
(c) Sales of properties by non-residents may escape from tax net when they made
a short-term profit. In terms of fairness to all property transactions, the IRD
may request for the clearance on any sales of properties by non-residents and the
solicitor handling the sales on their behalf shall inform and seek IRD’s approval
prior to completion of the sales.
(d) The current practice requires the taxpayer to request for personal assessment
at the time of filing his tax return. It is suggested that the IRD convert the
process by allowing the tax being computed on personal assessment basis unless
the taxpayer chooses non-personal assessment.
I am very much grateful if certain arrangements to put the above-mentioned
issues into the outstanding list could be discussed at the next panel meeting. Thank
you.
Yours sincerely,
TAM Heung Man
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Appendix 4
2005-06 Budget Consultation Overall on Revenue 1. There are calls from different quarters of the community
urging the Government to decrease or abolish certain taxes, such as the duty on ultra low sulphur diesel (ULSD), estate duty, duty on alcoholic beverages, etc., and not to introduce any new taxes such as Goods and Services Tax (GST). But the Government has been facing a continual budget deficit, and there should be no delay in solving the fiscal problem.
2. How should the Government set priorities and balance these
different interests in society whilst maintaining a healthy financial situation? How should Hong Kong seek to improve the stability of its tax revenues by broadening its tax base?
Goods and Services Tax
3. More than 120 countries have introduced a GST. Hong
Kong is the only developed economy that does not have one. GST is broad-based and equitable, and is capable of yielding sizeable and steady revenue. The Government has set up an internal committee to conduct a detailed and comprehensive study on the implementation of a GST in Hong Kong. It will draw on the practical experience of other places and come up with a proposed GST framework suitable for Hong Kong and an implementation timetable as a basis for discussion.
4. If Government decides to broaden the tax base and provide
for a stable source of income through the introduction of a GST, should this new tax be as all embracing as possible? What exemptions, if necessary, should be contemplated? What should the proposed timeframe be for the introduction of this new tax? Should there be any relief/offset package upon its introduction?
Estate Duty
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5. Estate duty is estimated to bring $1.5 billion in revenue for
2004-05. The consultation on estate duty has just ended. Views received are divergent with some contending that estate duty is a tax on the rich and helps redistribute income between the rich and the poor, but many others advocating abolition given its susceptibility to abuse and inequitable nature; and the need to help Hong Kong develop into the premier asset management centre in the region. Should the Government consider abolishing this revenue? What should be the proposed timeframe?
Capital Gains Tax 6. Hong Kong has been practising a low tax regime. However,
there have been fiscal deficits for years, and most tax jurisdictions in the world have capital gains tax. Should the Government consider levying a capital gains tax to raise more revenue? What impact would a capital gains tax have on Hong Kong’s economy?
World-wide Tax 6. All major tax jurisdictions in the world adopt a
resident-based system. Should the Government consider changing the territorial-based tax principle? What impact would a world-wide tax have on Hong Kong’s economy?
Duty on Alcoholic Beverages 7. The Government is conducting a review on the duty on
alcoholic beverages. There are views in the community that the duty on alcoholic beverages should be abolished to facilitate tourism and Hong Kong’s development as a regional hub for wine products. On the other hand, the duty is commonly regarded as a tax on non-necessity item and generates stable recurrent revenue. It is estimated to bring $761 million in revenue for 2004-05. Should the Government modify this tax? If so, what should the direction and implementation timing be?
Green Taxes
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8. From the perspective of environmental protection and increasing revenue, should the Government consider imposing a tax on plastic bags? A tax on vehicle tyres?
Tunnel Tolls 9. Currently the toll fees of the Cross Harbour Tunnel in
Hunghom are generally lower than that of the other two cross-harbour tunnels, causing traffic congestion problems. Should the Government raise the tolls of the Cross Harbour Tunnel to mitigate the traffic congestion problem?