LEGISLATIVE COUNCIL ─ 15 July 2014 16941

OFFICIAL RECORD OF PROCEEDINGS

Tuesday, 15 July 2014

The Council continued to meet at Nine o'clock

MEMBERS PRESENT:

THE PRESIDENT THE HONOURABLE JASPER TSANG YOK-SING, G.B.S., J.P.

THE HONOURABLE ALBERT HO CHUN-YAN

THE HONOURABLE LEE CHEUK-YAN

THE HONOURABLE JAMES TO KUN-SUN

THE HONOURABLE CHAN KAM-LAM, S.B.S., J.P.

THE HONOURABLE LEUNG YIU-CHUNG

THE HONOURABLE WAI-HING, J.P.

THE HONOURABLE TAM YIU-CHUNG, G.B.S., J.P.

THE HONOURABLE LAI-HIM, G.B.S., J.P.

THE HONOURABLE TOMMY CHEUNG YU-YAN, S.B.S., J.P.

THE HONOURABLE FREDERICK FUNG KIN-KEE, S.B.S., J.P.

THE HONOURABLE VINCENT FANG KANG, S.B.S., J.P.

THE HONOURABLE WONG KWOK-HING, B.B.S., M.H.

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PROF THE HONOURABLE JOSEPH LEE KOK-LONG, S.B.S., J.P., Ph.D., R.N.

THE HONOURABLE KIN-FUNG, G.B.S., J.P.

THE HONOURABLE KWAN-YUEN, G.B.S., J.P.

THE HONOURABLE WONG TING-KWONG, S.B.S., J.P.

THE HONOURABLE KA-WAH, S.C.

THE HONOURABLE CYD HO SAU-LAN, J.P.

THE HONOURABLE WAI-KING, J.P.

DR THE HONOURABLE LAM TAI-FAI, S.B.S., J.P.

THE HONOURABLE CHAN HAK-KAN, J.P.

THE HONOURABLE CHAN KIN-POR, B.B.S., J.P.

DR THE HONOURABLE MEI-FUN, S.B.S., J.P.

THE HONOURABLE CHEUNG KWOK-CHE

THE HONOURABLE WONG KWOK-KIN, S.B.S.

THE HONOURABLE MRS LAU SUK-YEE, G.B.S., J.P.

THE HONOURABLE WAI-CHUN, J.P.

THE HONOURABLE ALAN LEONG KAH-KIT, S.C.

THE HONOURABLE LEUNG KWOK-HUNG

THE HONOURABLE ALBERT CHAN WAI-YIP

THE HONOURABLE WONG YUK-MAN

LEGISLATIVE COUNCIL ─ 15 July 2014 16943

THE HONOURABLE CLAUDIA MO

THE HONOURABLE PUK-SUN, B.B.S., J.P.

THE HONOURABLE PEI-CHUN, G.B.S., J.P.

THE HONOURABLE NG LEUNG-SING, S.B.S., J.P.

THE HONOURABLE STEVEN HO CHUN-YIN

THE HONOURABLE CHI-MING

THE HONOURABLE WU CHI-WAI, M.H.

THE HONOURABLE YIU SI-WING

THE HONOURABLE GARY FAN KWOK-WAI

THE HONOURABLE MA FUNG-KWOK, S.B.S., J.P.

THE HONOURABLE CHARLES PETER MOK, J.P.

THE HONOURABLE CHAN CHI-CHUEN

THE HONOURABLE CHAN HAN-PAN, J.P.

DR THE HONOURABLE KENNETH CHAN KA-LOK

THE HONOURABLE CHAN YUEN-HAN, S.B.S., J.P.

THE HONOURABLE LEUNG CHE-CHEUNG, B.B.S., M.H., J.P.

THE HONOURABLE MEI-KUEN, J.P.

DR THE HONOURABLE KWOK KA-KI

THE HONOURABLE KWOK WAI-KEUNG

THE HONOURABLE DENNIS KWOK

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THE HONOURABLE WAH-FUNG, S.B.S., J.P.

DR THE HONOURABLE FERNANDO CHEUNG CHIU-HUNG

THE HONOURABLE SIN CHUNG-KAI, S.B.S., J.P.

DR THE HONOURABLE HELENA WONG PIK-WAN

THE HONOURABLE IP KIN-YUEN

DR THE HONOURABLE , J.P.

THE HONOURABLE CHEUNG-KONG, S.B.S., J.P.

THE HONOURABLE POON SIU-PING, B.B.S., M.H.

THE HONOURABLE TANG KA-PIU, J.P.

DR THE HONOURABLE CHIANG LAI-WAN, J.P.

IR DR THE HONOURABLE LO WAI-KWOK, B.B.S., M.H., J.P.

THE HONOURABLE CHUNG KWOK-PAN

THE HONOURABLE CHRISTOPHER CHUNG SHU-KUN, B.B.S., M.H., J.P.

THE HONOURABLE WAI-CHUEN, B.B.S.

MEMBERS ABSENT:

DR THE HONOURABLE LAU WONG-FAT, G.B.M., G.B.S., J.P.

DR THE HONOURABLE LEUNG KA-LAU

THE HONOURABLE IP KWOK-HIM, G.B.S., J.P.

THE HONOURABLE KENNETH LEUNG

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PUBLIC OFFICERS ATTENDING:

PROF THE HONOURABLE K C CHAN, G.B.S., J.P. SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY

MR JAMES HENRY LAU JR., J.P. UNDER SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY

CLERKS IN ATTENDANCE:

MR KENNETH CHEN WEI-ON, S.B.S., SECRETARY GENERAL

MRS JUSTINA LAM CHENG BO-LING, DEPUTY SECRETARY GENERAL

MR ANDY LAU KWOK-CHEONG, ASSISTANT SECRETARY GENERAL

MISS FLORA TAI YIN-PING, ASSISTANT SECRETARY GENERAL

MISS ODELIA LEUNG HING-YEE, ASSISTANT SECRETARY GENERAL

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BILLS

Committee Stage

CHAIRMAN (in Cantonese): Good morning, Honourable Members. Committee will now continue to examine the Stamp Duty (Amendment) Bill 2013 (the Bill) and continue with the seventh joint debate. I now call upon the Secretary for Financial Services and the Treasury to speak.

STAMP DUTY (AMENDMENT) BILL 2013

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, the Government proposes amendments to clause 24 of the Bill, as set out in the paper circulated to Members. The amendments are technical in nature to make corresponding amendments to the provisions listed against the headings of the First Schedule for reference in the light of new provisions proposed in the Bill and the Government's amendments.

Concerning the amendments proposed by Mr WU Chi-wai, which aim to exempt Tenants Purchase Scheme (TPS) flats from the doubled ad valorem stamp duty (AVD), I wish to state the Government's position. I appreciate Members' concern about the heavy financial burden on non-Hong Kong Permanent Residents (HKPRs) who purchase TPS flats, as they are subject to the Buyer's Stamp Duty (BSD) and the doubled AVD. Therefore, he has proposed to introduce an exemption mechanism specifically for TPS flats under the doubled AVD regime.

Perhaps I should first provide some figures for Members' reference. From the introduction of the BSD measure on 27 October 2012 up to 30 April this year, there were about 5 200 cases of completed transactions under the TPS, of which about 4 000 transactions were completed after the introduction of the doubled AVD measure. So far, it is learnt that only about 60 cases have paid the BSD.

After being informed of the relevant cases, the Government has all along adopted a reasonable, considerate and practicable approach in dealing with the matter. Regarding the payment of the BSD, the Inland Revenue Department (IRD) has discussed with the people concerned on the possible solutions, which include consider accepting payment of stamp duty by installments depending on LEGISLATIVE COUNCIL ─ 15 July 2014 16947 the circumstances of each individual case. Also, the IRD will consider remitting the penalty on a discretionary basis depending on the situation.

I want to point out that the Government does not agree with the amendments proposed by Mr WU Chi-wai having regard to policy and practical considerations.

According to the Bill, since flats purchased under the TPS are residential properties covered by the Stamp Duty Ordinance, purchasers of such flats are also subject to stamp duty, as in the case of other residential properties. Under the Bill, if a TPS tenant who fulfils the criteria to purchase a TPS flat acquires the unit jointly with a closely related person, the relevant transaction will be exempted from the doubled AVD as long as one of the purchasers is a HKPR and he/she acts on his/her own behalf and are not beneficial owners of any other residential property in Hong Kong at the time of acquisition. In other words, exemption provided in the Bills is also applicable to TPS purchasers.

From the policy perspective, we have applied the same treatment across the board and have not differentiated residential properties by type by providing exemption for a particular type of residential property under the Bill. If exemption provisions are specifically provided for certain cases relating to TPS flats under the Bill, this will not only upset the integrity of the relevant measure and create a gap which may lead to more exemption requests, but will also send confusing message to the market.

From the practical perspective, I hope Members will clearly understand that even if the Bill grants exemption to TPS purchasers from the payment of doubled AVD under the Bill, this will not help alleviate the burden of the BSD on the buyers. Worse still, this will highlight the inconsistency of the Bill.

I sincerely request Members to weigh the pros and cons, and oppose Mr WU's amendment to ensure the integrity and effectiveness of the demand-management measures.

CHAIRMAN (in Cantonese): Does any Member wish to speak?

(Mr WU Chi-wai indicated a wish to speak)

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CHAIRMAN (in Cantonese): Mr WU Chi-wai, let me see if any other Member wish to speak before you speak.

Does any Member wish to speak?

MR CHAN CHI-CHUEN (in Cantonese): In fact, Mr WU Chi-wai's amendments to exempt properties under the Tenants Purchase Scheme (TPS) from the doubled ad valorem stamp duty (AVD) will only affect a small number of people. Mr WU proposed his amendments from a practical perspective while stressing the policy objectives of the Government, that is, to contain speculation activities, control property prices and enable local first-home buyers in acquiring residential properties. Even if the amendments are passed, they will not bring about any adverse effect. Of course, the Government was merely repeating itself. Just now we heard the Secretary saying that same treatment has applied across the board, meaning that as properties under the TPS are residential properties, this minor category should not be exempted when all other residential properties are not exempted. This is what he called same treatment across the board, so as not to create a gap for certain types of residential properties or cases.

The Secretary thus highlighted another reason that the amendments would upset the integrity of the relevant policy, which indeed applies to all amendments. In deciding whether or not to support an amendment, we will certainly not consider from the Secretary's perspective, that is, whether the integrity will be upset. Our line of thinking is straight-forward, and we will only consider the possibility of providing exemptions, the possible adverse effects resulted, whether the pros will outweigh the cons, and whether the exemption can help some people. We always said that the Government's "curb" measure might "victimize the innocent". If we believe the people affected are innocent people but not speculators who seek to gain profits, it is hoped that the Government would facilitate them by providing exemption.

The Secretary said that the amendments would send confusing message to the market, but I think this is nothing more than a remark made from a "human tape recorder". "Upsetting integrity" and "sending confusing message to the market" are actually remarks played from the "human tape recorder". Even if an amendment to the Bill involves a mere punctuation mark, it will still send confusing message to the market as the relevant measure has already been implemented for one year. Even if it really sends confusing message to the market and subject TPS tenants to message or transaction costs as it is uncertain LEGISLATIVE COUNCIL ─ 15 July 2014 16949 when the message can be digested or received, thereby creating chaos in the short run, but the chaos will only be felt by this group of people. For those who intend to acquire properties on the next day or engage in speculation in the market, what chaos will there be?

The Government opines that all amendments are "supporters of combustion" and will add fuel to the fire. In that case, it should inform Members that their amendments would add fuel to the fire or fan the flames just like "supporters of combustion". However, I did not hear the Secretary say something like the passage of the amendments would further heat up the market. Nor did I see any traces of that. The Government only said that this would create a gap for A and B to seek exemption in a row. B may certainly seek exemption, but we will have to wait and see if he can bring community pressure or touch the hearts of Members, so that the issue can be brought up for discussion again when another amendment bill is to be introduced in 2015.

We should take facts as the basis and handle the matter depending on the merit of each case, but the Secretary has refused to do so. This time, the Government has adopted an opposite stance by applying the same treatment for all properties. This can be said to be an "across-the-board" or all-embracing approach. According to the Government, the buyers concerned have to make some sacrifices. What is more, the number of transactions is not large with only some 5 000 cases, of which only dozens of them involve non-Hong Kong Permanent Resident purchasers. The Government said that kindness has been bestowed upon these people by allowing payment by installment and no fine will be imposed if the payment is delayed for two years. Nonetheless, when examining the amendments, we should consider whether more can be done and whether they will bring benefits to people. The Government replied that as only a few people will benefit, it does not worth the trouble. The money saved as a result cannot offset the costs incurred in enacting another legislation or completing the necessary procedures. I nonetheless do not quite agree with the Government that this might give rise to more requests for exemption.

I learnt from the community that the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) also supports this amendment. If it does, it should say a few words. I also learnt that the Hong Kong Federation of Trade Unions (FTU) does not support the amendment. Can people who do not support the amendment explain why they have doubt about the provision of assistance to TPS tenants? The supporters said that although some 16950 LEGISLATIVE COUNCIL ─ 15 July 2014 purchasers have not lived in Hong Kong for seven full years, they have acquired properties with their hard-earned money and thus the Government should not exploit them any further. Their opponents doubted why assistance was not provided to the even poorer households instead. Should we also draw a line for low-priced flats, pocket-sized flats or aged flats (of buildings aged 40 to 50 years) so that buildings aged over 50 years or flats costing some $1 million will be exempted from the doubled AVD using the same criteria?

There is no doubt that any policy or exemption may "victimize the innocent" or fail to cater for certain needs, but as informed by the Secretary, the logic is: "Since we cannot help every member of the public, don't bother to help any of them as those who do not receive help will come to us. Better not do anything and thus keep everyone happy." Does the Government agree with this logic? If it does, can the Secretary elaborate on this? Let me make an analogy by using the example of an anti-discrimination law, which is of my greatest concern. Someone query that since the Government intends to introduce legislation on discrimination against sexual orientation, why not legislate for anti-discrimination against age and new immigrants as well? Everything follows an order of priority. While the proposal of Mr WU Chi-wai must be discussed in the first place, another proposal put forward by the FTU can also be discussed merely for the purpose of discussion.

Some people said that the proposal, even if implemented, can only help a handful of people while the majority do not receive any help. The Government does worry that other people will seek exemption and then we will have to discuss bills relating to stamp duty day after day. It is possible that we may have "Stamp Duty (Amendment) Bill early-2013" or "Stamp Duty (Amendment) Bill end-2014". I do not rule out the possibility that many people will seek exemption, but after the Bills Committee has discussed for a year or so, if there are strong requests for amendments, amendments like those proposed by Mr WU Chi-wai should have been raised. The fact that no amendment has been proposed in the past year or so reflected that Members are not very concerned about the narrow scope of exemption. In case there is a need to grant new exemptions, new legislative amendments can only be made after a year or two if the Bill is passed today. The Government claims that the "curb" measure is a short-term measure, but the Secretary has not told us what is meant by short-term and long-term measure. If the "curb" measure is just a short-term measure which will be removed one or two years later, and any amendment to the ordinance for providing other exemptions will take more than a year for LEGISLATIVE COUNCIL ─ 15 July 2014 16951 processing, the Government will advise Members not to add new exemption provisions as the extraordinary measures will probably be removed after a year or so when the property market gets back on the right track.

I will therefore support the amendment proposed by Mr WU Chi-wai. In fact, his amendment will affect only a few people. As the Secretary has said, the financial implication of the amendment is negligible. However, the logic of the Government has failed to convince us to sit with our arms folded, nor convince Mr WU Chi-wai to withdraw his amendments. If Members are totally convinced with the Government's arguments about "upsetting the integrity of policies", "sending confusing message to the market", "creating a gap" or "affecting effectiveness", they will certainly oppose the amendment. However, if Members vote against the amendment in the end, they will have to explain the reason for that. Is it because of Secretary Prof K C CHAN's brain-washing remarks about "upsetting the integrity", "sending confusing message to the market" or "creating a gap" that they refuse to render support? I hope Members will explain to us.

I so submit.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

MR CHAN HAN-PAN (in Cantonese): Chairman, the existing Tenants Purchase Scheme (TPS) was introduced in 1998 to cater for the needs of public rental housing (PRH) tenants, under which sitting tenants can purchase their PRH flats at a reasonable price and can only sell them by paying a premium. In other words, there is basically little chance for TPS flats to be sold in the market. In recent years, however, the Government has been encouraging TPS tenants to purchase PRH flats, and this is why some tenants have received promotional letters from the Housing Department (HD).

The fact is, after the introduction of the Buyer's Stamp Duty (BSD) in 2012, many tenants have received such letters from the HD. Learning that they can become flat owners, they have decided to purchase their flats. When they enquired if the payment of the BSD is necessary, the lawyers replied in the negative. That is why in 2012, no one knew that the transaction is subject to stamp duty when they decided to purchase their flats. Sometime after they 16952 LEGISLATIVE COUNCIL ─ 15 July 2014 purchased the flats, they received a notice for tax payment of about $100,000 for a flat costing about a few hundred thousand dollars.

This was the case in 2012. Members should note that the stamp duty rate is not determined by the transaction price of a few hundred thousand dollars, but by the market price. Thus, the tax payable for a flat that is worth a few hundred thousand dollars would be more than $100,000. This is indeed a nightmare to members of the public. Given that they have signed the agreements for sale and purchase, their request to rescind the transaction and return the PRH flats to the Government was therefore not accepted. Further transaction will be subject to tax payment again. Regardless of whether they purchase PRH flats or rescind the relevant transaction, they are subject to tax payment. This is the case of the BSD in 2012.

We have received a number of cases these days. Earlier, the Secretary said that there were only 60 relevant cases, but it was undesirable for us to have such experience in 2012. Therefore, when we legislate on the doubled AVD this time, we consider it necessary to provide protection for the grassroots living in PRH flats. Despite the small number of people involved, we are duty-bound to save them from their quagmire by all means through the present enactment.

Recently, a Tsing Yi resident, Ms LAU, told me that she has just come to settle in Hong Kong and is currently living with her family in a PRH flat in Tsing Yi. She has never thought of buying her own flat until she learnt that the HD is selling PRH flats. After she was told that the selling price of a flat was some $200,000, she spent all her savings to buy a flat. But upon completion of the transaction, she discovered that she was subject to a tax payment of some $90,000. According to Ms LAU, during the transaction, no one has ever told her that she was subject to the doubled AVD. She has asked HD's lawyer about the cost incurred, but the reply was that she was only required to pay the ad valorem tax. No one has ever told her that she is also subject to the doubled AVD, so she purchased the PRH flat. Yet, someone subsequently told her that she was subject to the doubled AVD. She then ran into trouble.

This happened after the introduction of the BSD in 2012, and we do not have any solution to this. Yet, the Bill under discussion offers a solution. Should we deal with it? In fact, the case of Ms LAU is only the tip of an iceberg and there may be other cases throughout the territory. I believe there will be more victims.

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The TPS enables grass-roots people to purchase their own flats, and it is believed that these buyers will not put the flats on sale in the market within a short period of time. I also trust that Members may agree that this group of people is not the target of the imposition of the doubled AVD. In view of this, while the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) supports the Government's imposition of the doubled AVD through the enactment of the Stamp Duty (Amendment) Bill 2013, it also hopes that the Government will consider exempting new arrivals who purchase TPS flats from the doubled AVD, with a view to alleviating their financial burden. We will therefore support the relevant amendment.

I so submit.

MR ALBERT CHAN (in Cantonese): Chairman, when I spoke yesterday, I have criticized the Government time and again for giving perfunctory consideration of the policy ambit in the course of policy formulation. Worse still, the Government has not considered if the policy implemented is consistent with the policy intent in many cases and whether it will have any adverse effect on certain people, communities or some particular group of people covered by the policy concerned, thereby causing catastrophic consequences. This is indeed extremely unfair to them. Let me use war as an example. In order to blow up the arsenal, civilians living nearby are also killed by the explosion, as in the case of Gaza which happened recently.

As a matter of fact, Mr WU Chi-wai's amendments also seek to correct or rectify the mistakes of the Government. In recent years ― not only during LEUNG Chun-ying's era, but has started from Donald TSANG's era ― the quality of policy papers prepared by the Government can be said to be the worst since the Hong Kong-British era. In the past, policy papers used to contain a lot of analysis and considerations. I remembered when I was elected a Member in the 1990s, the papers submitted would set out the policy ambit and then make an analysis, in particular problems and negative implications brought about by the policy concerned. Very often, there were also comments to inform Members of the implications on certain people upon the implementation of the policy.

However, no such analysis can be found in recent papers. Apart from singing praises, the papers merely explain the policy objectives and how they can be achieved. All of them adopted a one-sided approach. As a result, some 16954 LEGISLATIVE COUNCIL ─ 15 July 2014

Members, especially newly elected Members or those who are not familiar with the issue, will not be able to grab a full picture of the matter. Newspapers serving as mouthpiece of the Government will merely sing high praises of the policies concerned, without making any negative comment or description. For this reason, the problems will only surface when the relevant proposal is or about to be endorsed. Due to the failure to grasp much information or the omission of some information, Members (including me) might have missed out something in the course of discussion. Take the doubled ad valorem duty (AVD) as an example, I did not join the relevant Bills Committee because I have been very busy lately.

Mr WU Chi-wai, on the other hand, has noticed the problem. What problem did he notice? I want to cite two types of cases to show the Secretary the possible catastrophic consequences that the relevant policy may cause to some purchasers of flats under the Tenants Purchase Scheme (TPS). This is all because the Secretary has refused to accept Mr WU Chi-wai's amendments or failed to consider the problem concerned. Purchasers of TPS flats are indeed a very unique community. They are not rich. If they are rich, they will not buy public rental housing (PRH) units but move to Home Ownership Scheme (HOS) flats or private housing units instead. Many people who are powerful and wealthy, such as Antony LEUNG and Frederick MA, said that they used to lead miserable lives, but have now become powerful and wealthy. Many Members in this Chamber used to live in PRH units in their childhood.

In some of the families currently living in TPS flats, the husband, who is a Hong Kong resident, is many years older than his Mainland wife who has come to Hong Kong for less than seven years. These cases are still pretty common. There are two scenarios, either the flat owner is being forced to sell his flat, or the wife is being forced to purchase the flat in her name. If a husband loves gambling or runs into debt, he may have to borrow money from finance companies. In order to borrow money from finance companies, properties are often used as collateral. There are probably two types of flat owner, either the flat is fully owned by the husband or co-owned by the couple.

In case the property is co-owned by the couple and the husband borrows money from a finance company by mortgaging the property, he can use his 50% title as mortgage. If the husband cannot repay the loan, the finance company has the right to put up his property for auction. In that case, the wife has two options. She may negotiate with the finance company and clear the debt for his LEGISLATIVE COUNCIL ─ 15 July 2014 16955 husband, and then transfer the full title to property to herself. But as she has settled in Hong Kong for less than seven years, she is therefore subject to the doubled AVD under the existing policy. This runs contrary to the policy intent. She does not initiate the transaction for speculative purpose, but is actually forced to do so. Another alternative is to entrust the finance company to put up the property for auction and then settle the account with the wife concerned. Of course, it involves some legal procedures before the property can be put up for auction, which is a technical issue that I do not want to dwell on. Nonetheless, in principle, such a procedure is feasible.

If the wife is eager to continue to live in her flat, she may purchase her flat through public auction, but she is also subject to the doubled AVD. This is so unfair to her. In addition to the financial pressure, she has also been plagued by many family problems. Her good-for-nothing husband has mortgaged the flat that she is living in to borrow money from finance companies, and she has to face a lot of problems. She even has to pay the financial costs arising from the auction. Secretary, in these cases, the Government is indeed robbing the beggars. Is this just and fair? When formulating policies, the Government has very often not carefully examined the possible adverse effects. Therefore, I hope that when the Secretary gives a response later on, he will answer this question. Perhaps I have some misunderstanding, but I wonder if there is any way or mechanism that can exempt this lady from the payment of doubled AVD. I find it absolutely unreasonable for her to pay the doubled AVD.

Mr WU Chi-wai's amendments have basically plugged certain loopholes or rectified some mistakes, so that the purchasers of TPS flats can at least secure a cozy home for the time being and will not be so unfairly treated. I hope the Secretary will understand this. Chairman, the incumbent Directors of Bureaux and Secretaries of Departments, like the Financial Secretary, only sit in their offices to write blogs and do not have the slightest idea of the miserable plight faced most of the grass-roots people in the community. Two days ago, I have described the Government as a government with Autism Spectrum Disorders. So are the government officials. They refuse to feel the pulse of the community and therefore have completely no idea of people's sufferings. It would be impossible to know the existence of so many possibilities if he/she refuses to step out. I hope the Government will give seriously consideration to this. I also call on other Members not to think that all government proposals are flawless whereas those put forward by the opposition party must be voted down. The examples I mentioned just now are real situations. I hope that Members will 16956 LEGISLATIVE COUNCIL ─ 15 July 2014 understand the pain of the grassroots, and do not put them in such an unfair and unreasonable position just for the sake of supporting the Government.

Thank you, Chairman.

MR JAMES TIEN (in Cantonese): Chairman, Mr WU Chi-wai's amendment seeks to exempt instruments for residential properties that are public rental housing (PRH) under the Tenants Purchase Scheme (TPS) sold to sitting or recognized tenants from the doubled ad valorem stamp duty (AVD).

At first, the Liberal Party has not carefully examined this amendment, but after listening to the speeches of a number of Members, we will support Mr WU's amendment. However, I am not going to use the argument presented by Mr Albert CHAN, which is fire-fanning and aims to drive Members into opposition. The Democratic Alliance for the Betterment and Progress of Hong Kong, on the contrary, are very familiar with the situation of the grassroots and problems relating to the TPS. As its Members also consider the amendment worth supporting, I think the amendment may be able to get through.

I will not borrow Mr Albert CHAN's words to criticize the Secretary, who is probably unaware of this serious problem at the initial stage. I therefore hope that Members will not use such harsh words to criticize the Government. After listening to Mr CHAN's speech, some Members may switch to support the Government and oppose the amendment.

Chairman, let me go back to the content of the amendment. It sounds very reasonable. We hope that tenants who have been living in PRH flats for many years can afford to buy the TPS flats that they are currently living in. PRH tenants cannot afford to buy expensive housing units, not to mention private housing units. Nor can they afford to buy flats under the Home Ownership Scheme. They can only afford to buy the PRH units that they have been living in. Worse still, as far as know, these PRH units do not have posh decoration.

Given that they have been living in the flat concerned, so if they are required to pay the doubled AVD when they purchase the flat … They are poor grassroots who do not have many assets, why does the Government still impose such a stamp duty on them? I am not sure of the amount involved and perhaps it is only a small sum of money, but even if the amount is negligible, it is still a financial burden to them.

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If this sum of money is insignificant to the Treasury and the flats concerned are not for speculation in the market, I do not understand … As an investor, I am not aware of this type of housing units in the property market. But given that this amendment can help the grassroots, I think functional constituency Members and geographical constituency Members, who often criticize the former, will support and endorse this amendment when it is put to vote. There should not be any problem. I hope that the Secretary ― I wonder if it is too late for a re-consideration of this amendment ― will allow this minor amendment to get through.

The Liberal Party supports this amendment. Thank you, Chairman.

MS CYD HO (in Cantonese): Chairman, I think that there are problems with the Tenants Purchase Scheme (TPS) from the very beginning. This is because when it was launched by the Government, the main purpose was to shrug off the responsibility of repair and maintenance of public rental housing (PRH) by passing it to the tenants.

In fact, it is pretty undesirable for PRH tenants to purchase the PRH flats that they are living in. Of course, PRH flats are subject to many restrictions. Firstly, there is the so-called "Well-off Tenants Policies", under which tenants with household income exceeding a certain limit are required to pay double rent. Sitting tenants are eager to buy their flats because they fear that if something happens (as simple as littering) or a family member commits any misdeeds, they will no longer be eligible for PRH flats when they have accumulated certain penalty points allotted by the Housing Authority and Housing Department.

However, it is the wish of most tenants to pass their flats to the next generation. Another restriction on PRH flats is that only one child can reside in the flat with his/her children after he/she gets married. PRH tenants probably hope that they will no longer be subject to this restriction after they purchase the flat, and thus enjoy greater freedom and flexibility in the use of their flats, especially in passing their flats to the next generation.

Noting that under the TPS, there are both flat owners and tenants in the same housing estate, the common responsibility of repair and maintenance has therefore created many conflicts between them. Despite the deficiencies of the TPS, many tenants have already purchased their flats. While encouraging PRH tenants to purchase the flats that they are residing, the Government has included 16958 LEGISLATIVE COUNCIL ─ 15 July 2014 them into the scope of the Stamp Duty (Amendment) Bill 2013 (the Bill), which requires households who have worked so hard to save some hundred thousand dollars to pay a certain percentage of stamp duty, thereby adding extra burden to their humble home ownership plan.

We should bear in mind that grass-roots families are not like middle-class families. While the latter have high income throughout the year and has no difficulty in increasing their saving by 10% to even 20%, the grass-roots families always strive to "save every dollar and every cent" and some even have to resort to community services, such as food banks, to survive. It is therefore outrageous for the Bill to cover the transfer of PRH flats. I am therefore very thankful to Mr WU Chi-wai for proposing this amendment during the scrutiny of the Bill.

The policy to require PRH tenants to pay Double Stamp Duty fully reflects that public officers have engaged in black-box operation. They expeditiously formulate an "extraordinary policy" behind closed door and then put it into effect immediately to govern different kinds of home-buyers, including even buyers of PRH flats.

Chairman, I am indeed delighted and surprised to hear that Members from the Democratic Alliance for the Betterment and Progress of Hong Kong support this amendment. So does Mr James TIEN (a Member from the Liberal Party having business background). Here, I wish to lobby more Functional Constituency (FC) Members to support this amendment, knowing that there should be enough support votes from Geographical Constituency (GC) Members. We need more support votes from FC Members.

Miss CHAN Yuen-han from the Hong Kong Federation of Trade Unions (FTU) is now present. I hope that representatives from the FTU can make a response later on. They have counted the number of votes, right? I hope the FTU and FC Members not affiliated to any political groups will support this amendment. The Labour Party will definitely support it, but we only have one vote in the FC. Mr Dennis KWOK is looking at me now. I also beg him to support this amendment so that we can have one more FC vote. Chairman, I eagerly hope that this amendment can be passed.

Let me go back to people affected by this amendment. Mr Albert CHAN just now said that the Government is like robbing the beggars. Who is holding the beggars' money? Mainly widows and orphans. Many of them are LEGISLATIVE COUNCIL ─ 15 July 2014 16959

Mainland women married to Hong Kong husbands in cross-boundary marriage, but then the husbands, the breadwinners of the households, died and left behind the widows and orphans. The orphans cannot purchase the flats as they are under 18, nor can the widows, who are not Hong Kong Permanent Residents and have yet to obtain the Hong Kong Permanent Resident identity cards.

But if these widows and orphans do not purchase the flats, they may not be allowed to live in that unit thereafter as the tenancy has not been transferred. In that case, they would be forced to purchase the flat. Leading miserable lives, these families may have to take loans in order to secure some $200,000 to $300,000 to purchase the flat, but the Government has imposed a doubled ad valorem stamp duty on them. This shows that the Government is unscrupulous and obstinate, and pays no heed to public sentiment.

Chairman, although not many people will be affected, one is already too many. Therefore, at this very last moment, it is hoped that we can lobby the Secretary to support this amendment. Even if we fail, we still want to make our last effort to lobby Members from different political parties and affiliations (including both FC and GC Members) to gather at this Chamber and support this amendment when it is put to vote later on.

Chairman, I rarely invoke Rule 17(2) or 17(3) of the Rules of Procedure to request a headcount because I do not want to risk aborting the meeting. Instead of requesting a headcount now, I am going out to lobby colleagues from other political parties and affiliations outside the Chamber. But I would like to notify Members that if they do not return to the Chamber when the amendment is put to vote later on, someone may invoke the Rules of Procedure to request a headcount so as to secure more votes for the endorsement of the amendment.

Thank you, Chairman.

MR ABRAHAM SHEK: Chairman, Mr WU Chi-wai's Committee stage amendment (CSA) is about the exemption arrangement for the acquisitions of Tenants Purchase Scheme (TPS) flats by the sitting tenants who are not the beneficial owners of any other residential property in Hong Kong.

Secretary, the CSA is legitimate given that the probability of abuse is extremely low as only eligible sitting tenants ― who have satisfied stringent 16960 LEGISLATIVE COUNCIL ─ 15 July 2014 requirements to be qualified as sitting tenants ― can purchase TPS flats; it is thus arguable that acquisition of TPS flats by the eligible sitting tenants should not be considered a kind of speculative activity. That is the purpose of the ad valorem stamp duty (hereinafter referred to as "DSD"), the Special Stamp Duty (SSD) and the Buyer's Stamp Duty (BSD) which is to ensure that Hong Kong people can buy their home. Those are Hong Kong people. Although they might not be permanent residents, they are there because their families are, as highlighted by Ms Cyd HO.

Moreover, it is not sensible to say such acquisitions would encourage speculation or affect the private residential property market ― I come from the private residential property market ― and the homeownership needs of the community at large because the TPS flats belong to subsidized housing and they should be distinguished from the flats in the private sector. The Administration's across-the-board approach that TPS flats should be subject to the DSD, same as all other residential properties, is thus barely acceptable ― acquisitions of TPS flats by the eligible sitting tenants will not affect the chance of Hong Kong Permanent Residents (HKPRs) purchasing a home in the private residential property market.

From the perspective of policy making, the dividing line between the subsidized housing market and the private flat market is very clear and must not be blurred. Why can the Administration disregard this basic principle only to accommodate the administrative expediency that residential properties are not differentiated by types under the Stamp Duty (Amendment) Bill 2013 (2013 Bill)? This is a matter of compassion, not policy expediency. Is the principle of policy making subordinate to the framework of the 2013 Bill? If this is the case, it is equivalent to putting the cart before the horse.

When it comes to proportionality, if the possibility of abuse is the Administration's concern, it should be noted that the acquisition of a residential property by a non-HKPR or on behalf of a HKPR minor is already subject to the 15% BSD, the risk of abuse and speculation would have been addressed to a considerable extent. The Administration also pursues this reasoning in justifying its position about accepting the arrangement for acquisition of multiple properties under one instrument ― the implementation of the SSD and the BSD has reduced the investment risk considerably for a person to engage in speculative trading activities by acquiring more than one residential property in a single instrument with a view to getting around the DSD. If the Administration adopts LEGISLATIVE COUNCIL ─ 15 July 2014 16961 the same reasoning and logic, there is no point rejecting an exemption to sitting tenants under the TPS, which aims to meet the actual housing needs of the sitting tenants with no explicit loopholes to be exploited.

Chairman, while the Secretary seems quite adamant not to listen to reasons and logic by repeating the same platitudes as he has been during the last few days, I call upon the Secretary, who is known for his compassion, to give new insights on our queries.

Thank you.

MR CHAN CHI-CHUEN (in Cantonese): Chairman, I wish to add a few points.

Firstly, for public rental housing (PRH) tenants who are eligible for purchasing flats under the Tenants Purchase Scheme (TPS) directly from the Housing Department (HD), the HD has imposed various restrictions. There are stringent rules and restrictions to prevent tenants who have purchased TPS flats from re-selling them for profits. The restrictions include: first, the flats can only be sold to the HD two years after the purchase; secondly, the flats can only be sold to Green Form applicants (without having to pay the premium) after three years, and thirdly, free transaction of the flats in the market is only allowed (five years later) after paying the premium. In other words, it is impossible for these PRH residents to engage in speculation.

As both the relevant legislation and the policy of the HD are unreasonable to a certain extent and technical amendments are therefore warranted. The "curb" measure does not intend to target at these PRH residents, but to improve their living. By "improve their living", we mean to enable them to own the property that they have been living in for many years. Although it is too already late, I still urge the Government to exempt those owners of TPS flats from the double stamp duty on a discretionary basis. However, the LEUNG Chun-ying Administration has been adamant towards this humble amendment.

The reason why the Secretary's opening speech sounds so familiar to me is that he has read out paragraphs 60 and 61 of the Bills Committee's report, instead of responding to Members' speeches despite the fact that Mr WU Chi-wai has put forward new grounds and justifications. Although it is already too late for the Secretary to say anything, I still hope that he will not read out paragraphs 60 and 61 again later on.

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The political reality is, including Members returned from direct elections, be they the moderate democrats or radical democrats, and Members from the Democratic Alliance for the Betterment and Progress of Hong Kong, all Members from political groupings beginning with the letter "D" have indicated their support. Therefore, we should have secured enough votes from Members returned from direct elections. Now, only Members returned from functional constituencies (FCs) have not been counted. For FC Members, the DAB has indicated their support. So has the Liberal Party.

Before I pressed the "Request to speak" button, I have a question in mind: Do Members from the Business and Professionals Alliance for Hong Kong support this amendment? It is still unknown. Mr Abraham SHEK has spoken just now and indicated his support. I hope that Mr Abraham SHEK, Mr Andrew LEUNG, Mr Jeffrey LAM and "Uncle Fat" will either support Mr WU Chi-wai's amendment, or simply leave this Chamber later.

Now I am going to lobby Members from the Hong Kong Federation of trade Unions (FTU), who have yet to speak. I learn from hearsay that they will support the Government. Members should now understand what is meant by the "royalist camp". It may indicate support on the one hand, but vote against it or even abstain from voting on the other … They have all left. The denominator will decrease and … I should not request a headcount now as they have all left. It seems that "Miss CHAN" wanted to speak but then hesitated. No Member from the FTU, to which she belongs, has spoken so far. If her stance is different from the majority of Members, she had better give an explanation. Can we adopt voting by secret ballot? If we can, I think no Member will oppose the amendment later on.

Mr WU Chi-wai may decide for himself how everything should go. I now call on the FTU to stand on the side of the people but not LEUNG Chun-ying. This is only a very humble amendment, but it carries a significant meaning of helping that group of people. Politically, the meaning of this amendment is, since our adamant and unsympathetic SAR Government vowed that the passage of this amendment will upset the integrity of the "curb" measure and send confusing message, we should endorse it and prove to the SAR Government whether it will send confusing message and create a loophole in the "curb" measure.

I so submit.

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MR JAMES TO (in Cantonese): Chairman, throughout the course of discussion, the invincible SAR Government has insisted that its policies are the most noble, glorious and infallible. The Government has not responded to Mr WU Chi-wai's amendment just now, but since a number of colleagues have put forward many new arguments, I want to add a few points.

A colleague has cited some odd cases earlier, and the Secretary said that there would not be any problem if the flats are sold to Hong Kong Permanent Residents (HKPRs). For those odd cases involving widows and orphans, the Secretary advised that they are still subject to the Buyer's Stamp Duty (BSD) as the purchasers of the flats would probably be widows who have settled in Hong Kong for less than seven years. According to Mr WU Chi-wai, the widow concerned is not familiar with the relevant law and she should have purchased the flat after she has resided in Hong Kong for seven years. But due to various reasons, when the Housing Department told her she could purchase the flat, she then purchased it with the pension, estate and insurance that her husband left her. In my opinion, this is a matter of compassion rather than consistency.

If the Secretary still insists that even if the legislative amendment to exempt the widow concerned from the payment of that few percentage points of double stamp duty (DSD) is passed today, it does nothing to help her pay the BSD at some 10%, which is the largest expense amounting to a few ten thousand dollars. Actually, the Secretary should consider supporting this amendment instead and do whatever he can before conducting a review. After all, the measures to suppress demand or combat speculation, including the implementation of the Special Stamp Duty and BSD, are actually not applicable to the Tenants Purchase Scheme (TPS).

I have no idea why the Government insisted on implementing the DSD by all means to suppress buyers' demand with those dozens of odd cases. What kind of demand does the Government intend to suppress? Is it the wish of the Government to make the widows wait for seven years before they can purchase the flats, or disallow them from purchasing their flats so that they will become under-occupied households, and can then be expelled for other tenants to move in and purchase the flat in the future? I really cannot figure out how the Government is going to comply with its policy of suppressing demand.

Will the number of TPS flats available for sale decrease as a result of these widows and orphans purchasing their flats? Is it possible that these flats be used for speculation? If that is not impossible, no wonder colleagues have described 16964 LEGISLATIVE COUNCIL ─ 15 July 2014 the Government as unscrupulous, small-minded, obstinate, adamant, unreasonable … I won't go to the details. I try not to describe the Government as unscrupulous, but I have to. Although the Government is well aware that granting exemptions to those dozens of cases will not have significant implication on the principal policy, it still insists on its way. After all, the Government wants to be invincible and this is why it insists that its policy is noble, glorious and infallible. If not, what other reasons could there be?

Chairman, even colleagues from the Democratic Alliance for the Betterment and Progress of Hong Kong and the pro-establishment camp support this amendment. The Liberal Party, which originally opposed it, has also indicated its support. Although we are not sure yet if Mr Abraham SHEK will support it, he has expressed his sympathy. I therefore call on other colleagues, including those from the Hong Kong Federation of Trade Unions, to leave the Chamber when the amendment is put to vote if they find that the amendment has many deficiencies after thinking about it seriously. This is no big deal, but simply to get a message across to the Government.

The proposal will unreasonably increase the property purchase cost by a few ten thousand dollars to a hundred thousand dollars. According to Mr CHAN Han-pan, the cost will unreasonably increase by $90,000. Worse still, it will give rise to a technical problem. While buyers of TPS flats may apply up to 90% or even 95% of mortgage loans, there is no mortgage for the stamp duty payment. It is still acceptable if that $90,000 can be added to the property prices for application of mortgage loan at 95% altogether, but it cannot. The imposition of this $90,000 stamp duty is really too much for the widows and orphans.

The Government claims to be compassionate to them on the one hand, but clearly advised the Bills Committee that the stamp duty must be imposed on the other, on the excuse that it does not have the relevant discretionary power. Discretion can only be exercised in allowing payment by instalment. How many instalment is allowed by the Government? Even if they are allowed to pay the stamp duty within one or two years, it is still too much for them. How about a monthly instalment of $100? The repayment will have to take thousands of years. If the Government really accepts a monthly instalment of $100, I would say it is compassionate; but if the monthly instalment reaches as high a few thousand dollars, it will be too much for them.

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Chairman, the Government claimed that once an exemption is granted, many people would follow suit to request for exemption. And yet, we still have to determine if the request is reasonable. The Government went further to say that this might send a wrong message to the public. But, in fact, the message is pretty clear, the Government should not impose but provide exemption from such duty. Will any property estate agent disseminate information that since exemption has been granted to public rental housing (PRH) flats, it will be further extended to Home Ownership Scheme units or low-priced private residential properties later on? I wonder what kind of information will be disseminated to the public, except that the transaction of TPS flats has nothing to do with the property market.

Furthermore, the policy intent is not to increase revenue as it involves only dozens of cases. The revenue generated from these dozens of cases is indeed negligible. After all, this is a test to see if the Government is sincere in formulating a good policy. I will not blame the Government if it has missed out this point. Many colleagues have blamed the Government for its omission, but I will not. It is just that it has not thought of this point. However, the fact is, despite that fact colleagues have reminded the Government and the Bills Committee has argued for hours, the Government still sticks to its own way. In other words, it has not missed out this point. Rather, it is stone-hearted and unsympathetic. Why does our Government behave like that? Who has made such a decision? Is it the Chief Executive? If so, it is him who is unsympathetic and adamant. If this is the decision made by the Secretary of Department who only knows how to write blogs, he will have to assume the political responsibility. This is not only a matter involving only dozens of cases, but a matter of life and death.

Chairman, I understand that our Government is of such nature, but I still hope our colleagues will have conscience. Will the passage of this amendment result in catastrophic consequences and plunge the property market into chaos? Will the granting of exemption to PRH flats immediately push up property prices by 10%? Members should know that this is not going to happen. I therefore hope that Members who intend to vote against Mr WU Chi-wai's amendment or political parties that have decided to vote against it will consider excusing themselves from voting. History will remember what Members have done due to various reasons.

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MR TOMMY CHEUNG (in Cantonese): I would like to respond to the speeches made by several Members just now. First, I do not think Mr CHAN Chi-chuen should call us "Liberal Democratic Party" just because we support the proposal; the name of our party is "Liberal Party", without the word "democratic". Second, Mr James TO just said that the Liberal Party has also changed its stand from opposition to support. In this regard, the Liberal Party has actually never expressed any stand of opposition or support. Our party leader, Mr James TIEN, has all along stated the view that we will oppose all measures to increase the duty rates and support all measures to lower the duty rates. We oppose the Bill during the Second or Third Reading. That is our established stand.

Nonetheless, we discussed the amendments proposed by Mr WU Chi-wai last night. His amendments were neither related to making upward nor downward adjustments, but granting exemption for a particular group of people. We then discussed our stand on the amendments. Of course, we soon came to a conclusion. As tenants of public rental housing (PRH) are certainly not high-income earners, they can only afford to buy their own PRH flats. Chairman, perhaps you may be tired of hearing me repeat my remark for six or seven times, that is, throughout the process, the Government only cares about getting enough supporting votes and nothing else. Hence, let me advise Honourable colleagues of other major parties not to accede to or support all requests from the Government. It is right to say that "We support the 'curb' measures because this is the right thing to do. Property prices are so high that young people cannot afford to buy their own homes. This view is also shared by our electors." As they always support the Government, the Government is complacent and couldn't care less about other Members' views so long as it has enough supporting votes.

Regrettably, many colleagues who support this Bill are now even more agitated than us. Why? Because even they can't stand it anymore. The devil is in the details and is revealing gradually. I thank Mr WU Chi-wai for proposing the relevant amendments because we have overlooked this point. Of course, this is not our primary concern, but regrettably, some odd cases would come up in the implementation of the Buyer's Stamp Duty (BSD). For example, a non-local married a Hong Kong resident, and the couple become tenants of a PRH flat due to various reasons. What if they want to purchase their own flat? Why should we … Secretary, if these Committee stage amendments (CSAs) do get passed, you should go back and ask your colleagues why the BSD should be levied on these people in the first place. For this reason, Secretary, you have to bear the brunt now.

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Nonetheless, given that the Secretary for Transport and Housing has said that the Housing Department has insufficient fund, is there other better measure than enticing PRH tenants to buy their own flats at some $100,000-odd? Revenue amounting to billions of dollars can be generated if only several thousand units can be sold. But instead of taking this course of action, the Secretary even proposes to levy additional duty on such transactions. In that case, who will buy the flats? Money is needed at the moment. For businessmen like us, we will find ways to realise the assets in case of financial difficulties. But perhaps the Government considers it no big deal because it has abundant fiscal reserves amounting to hundreds or thousands of billions of dollars, and can make injections anytime. But from a normal business point of view, there is absolutely no reason to deter PRH tenants from buying their own flats with the implementation of this Bill which gives effect to the double stamp duty. In fact, this is a large sum of money for the tenants, and they must also be subject to many restrictions. As Mr CHAN Chi-chuen has stated very clearly just now, restrictions apply if the flat is resold within two years, three years or five years. If flat owner wants to sell the flat after five years for speculation purpose, he must also pay the land premium first. Considering the trouble, who would buy these flats for speculation?

In fact, the Government has been handling the Bill too casually and hastily throughout the process and all it cares is to get enough supporting votes. Chairman, as you may also know, some media has lately reported on Mr Tommy CHEUNG and Mr James TIEN of the Liberal Party. Yesterday, some reporters even said to me, "Tommy, your work in these two days is as much as what you have done over the past four years." I also hope that I do not have to take up any work in the next two years. But the problem is: Mr James TIEN and I are responsible for scrutinizing this Bill. We are working jointly, rather than individually, on this Bill. Of course, we make observations based on different perspectives: he scrutinizes the Bill from the perspective of a developer while I would consider the proposals as a person without any property. We have spent much effort on examining the Bill.

In the course of scrutinizing the 2012 and 2013 Amendment Bills, I have not spoken much and have not engaged in any filibustering. The scrutiny process took so long because the Government always failed to answer our questions. When questions were asked by Honourable colleagues, the Government did not respond; and when the Government submitted papers for the next meeting, it was still evasive and did not respond to our questions. I was 16968 LEGISLATIVE COUNCIL ─ 15 July 2014 clueless as to what the Government was doing. The Government should simply tell us whether or not it would take certain actions, or whether it would accept our suggestions or CSAs. It was as simple as that, but the Government would always beat about the bush.

Frankly speaking, if Mr Tommy CHEUNG and Mr James TIEN were to engage in filibustering in the Council, we need not wait until today. We could have done so a long time ago. Moreover, why should we filibuster on this Bill? Chairman, the Government has already pocketed the money. Regardless of whether the Bill is passed today or in September, October or even July next year, the money has already been pocketed by the Government, just that the money is now deposited with the lawyers, and not credited to the Treasury.

If the Government is truly committed to this Bill and the "double curbs" measures, it should, firstly, stop discrediting Members or restricting my right to speak. My right to speak is protected by law. The Government should not say to the media and reporters that Tommy CHEUNG is filibustering. If Tommy CHEUNG were to filibuster, his attire would be different. If I were to filibuster, I would be wearing comfortable clothes, rather than in tie and suit; if I were to filibuster with the Government, I would be wearing my pyjama pants, long pants rather than short pants.

Hence, I sincerely advise the Government that people living in PRH flats are in need of assistance. Hong Kong is very lucky to have a PRH system. During Mr TUNG's era, he even hoped that all people could have their own home and hence, he proposed the "85 000 flats" policy. He also hoped that PRH tenants could buy their own flats, so that when they were 60 or 70 years old, they need not worry about paying rents or applying for Comprehensive Social Security Assistance for rent payment. In fact, home ownership is very difficult for the grassroots. Perhaps home ownership is their dream for life. Why can't the Government concede slightly with this matter in the Bill? As the relevant CSAs have already been proposed by an Honourable colleague, it should really embrace them readily and thankfully. This would be a benevolent act of the Government.

Hence, why must the Government create such disharmony in Hong Kong? Both the poor and the rich are dissatisfied with the Government; both property owners and non-property owners like me are dissatisfied with the Government. What can be done? Friends of mine in the industry who want to acquire shop premises are dissatisfied with the Government, and those who want to sell their LEGISLATIVE COUNCIL ─ 15 July 2014 16969 shop premises and retire are dissatisfied with the Government. What is wrong with the Government?

Hence, I think the Secretary should seriously reflect on this matter. As the CSAs have yet to be passed, he should ask those Members who support the Government to give up and accept the CSAs as the proposal will not cause much chaos. This should make things much easier for all of us. Thank you, Chairman.

MR LEUNG KWOK-HUNG (in Cantonese): Chairman, what should I say? Actually, the message conveyed in Mr Tommy CHEUNG's speech just now is quite simple. "Long live the never-ending radiance of LEUNG Chun-ying Thought!", "Long live the invincible thought of LEUNG Chun-ying!" These are the language used during the Cultural Revolution. Frankly speaking, there are 70 seats in this Council, and almost all Members have stood up against the Government's policies at one point or another. Yet I have never seen the Government making any concessions. The Government always gets its way through vertical or horizontal alliances.

Frankly, I am a tenant of public rental housing (PRH). I oppose to the Government's policy of selling PRH flats to the sitting tenants because the Administration has not made it clear that once they buy … That is more or less TUNG Chee-hwa's approach of giving each citizen a flat as a present. In other words, TUNG Chee-hwa was dreaming; he wanted to copy the practice of Singapore, and the best way to do so was to give each citizen a flat as a present. Once they become property owners, they have their own home. In this way, any target of home ownership rate ― be it 60% or 80% ― can be achieved. I have been opposing this policy since then. Why? For the poor, owning a flat does not mean end of story. In fact, they have to spend money on routine repairs and maintenance, as well as on major repair works. There is no end of the trouble. The initial amount of money they paid only covered maintenance of the flats for seven years. Now, it is the eighth year … At present, many residents in my constituency are unhappy about the situation. Take for example bid-rigging in the maintenance work of mosaic tiles. Someone was instructed to make holes or dents on the wall of the 15th floor with a hammer, and the owners would have to pay for the maintenance of the mosaic tiles. Hence, this has never been a meritorious policy, not even from the start.

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Back then, TUNG Chee-hwa craved for greatness and success. Today, we have LEUNG Chun-ying. As TUNG's protégé, he also craved for greatness and success when he introduced the "double curbs" measures. Yesterday, we had debated on so many issues. If the Government's logic is sound, it would surely take the view that it might as well concede given the minor impact of this proposal because even the practice of buying 100 flats under one contract is acceptable. Buddy, I have never heard that so long as a person is a "virgin" or "maiden" ― calm as a virgin and agile as an escaping rabbit ― so long as a person is a first-time buyer, he will not be subject to additional duty even if he buys 100 flats in one go. Buddy, even if a person were lucky enough to find beans to eat while eating ordure, it would only happen once; how could it happen twice? Should this happen by chance this time, I would only give my support for once only.

If the Government's rationale raised yesterday is sound … Ms Starry LEE, a Member of the Executive Council, has stood up bravely to support this proposal. But Secretary Prof K C CHAN does not support it. How much is her salary, and how much is the Secretary's salary? Where is John TSANG? While John TSANG writes his blog, she stands up to give support. If the logic is sound and the impact is so little, those poor people … Because according to the Government's policy intent ― which was read out by Mr CHAN Chi-chuen yesterday ― the "double curbs" measures are implemented to enable home ownership by Hong Kong people, especially the grassroots. If the Government does not give them a flat, they must purchase their own properties. The additional burden imposed on the seller will naturally be transferred to the buyer. It is just very simple logic, and even the cost of premium payment is likewise transferred to the buyer. There is no reason to do so just for the sake of responding to the call of the great leader Chairman LEUNG Chun-ying, or perpetuating his never-ending radiance or invincibility, or supporting the Qing Dynasty and destroying foreign powers, or blah blah blah. Hence, the said policy intent cannot be achieved.

Why do I have a good understanding of the present amendments proposed by Mr WU Chi-wai so well? Because I live in his constituency. I would always check on Mr WU Chi-wai's "imperial edicts" whenever I have time. It turns out that this is one of his priority initiatives. Buddy, I must thank him for he has really done something.

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What is the greatest difficulty now? Rumour has it that the Hong Kong Federation of Trade Unions (FTU) is unco-operative, that is, Members of the FTU cannot support his amendments and must relentlessly support the Government. Frankly, I can't make heads or tails of the FTU. Has the Government struck a deal with it? What advantages would the Government give to the FTU? Is this the case? Perhaps the Government will make concessions to the FTU on other matters, which is a means of lobbying.

Hence, I would like to enquire about a point of order. Can Members move a motion that "further proceedings of the committee be now adjourned" at this stage? Is there any provision on such an arrangement? Chairman, I would like to ask you about a point of order. Can I move a motion at this juncture that "further proceedings of the committee be now adjourned" so as to give Members more time for discussion outside the Chamber? Can I do so?

CHAIRMAN (in Cantonese): According to Rule 40(4) of the Rules of Procedure, a Member may move without notice that further proceedings of the committee be now adjourned.

MR LEUNG KWOK-HUNG (in Cantonese): I now move without notice … I have already given notice. I now formally move a motion that "further proceedings of the committee be now adjourned". Why? Because should discussion continue, after the Chairman has counted the vote, the amendments may be negatived or passed.

Chairman, thank you for your instruction. I now formally move a motion that "further proceedings of the committee be now adjourned" and hope that Members of the Liberal Party and the FTU can revisit their stands. In that case, I need not filibuster; otherwise, I may engage in filibustering. Why? The Government is now deserted by its friends and allies. With Members speaking about the matter passionately, prolonging the debate can make John TSANG change his attitude. Can I now move without notice … I now formally move a motion that "further proceedings of the committee be now adjourned".

CHAIRMAN (in Cantonese): As Mr LEUNG Kwok-hung has moved that further proceedings of the committee be now adjourned, as provided under the Rules of Procedure, I must deal with this motion first. Mr LEUNG, you may sit down.

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I now propose the question to you and that is: That further proceedings of the committee be now adjourned as moved by Mr LEUNG Kwok-hung. According to Rule 40(5) of the Rules of Procedure, Members are not allowed to move an amendment to this motion.

Secretary, do you wish to speak on this motion?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): I will make a brief response. Mr WU proposed the present amendment because he has observed some cases. According to the data in hand, of the 5 000-odd cases of transaction of flats under the Tenants Purchase Scheme (TPS), 60 involved non-Hong Kong Permanent Residents (HKPRs) and are therefore subject to the Buyer's Stamp Duty (BSD) and the doubled ad valorem stamp duty (AVD) as discussed in this Bill. Under the policy, HKPRs will be exempted when buying their first homes and such exemption is also applicable to TPS flats. The major problem relating to those 60 cases is the BSD, which is a pretty large sum of money and has therefore aroused Members' serious concern. Members have discussed the matter with the Inland Revenue Department, and it has dealt with these cases on a discretionary basis.

Today, we are having a debate on the doubled AVD. Even if exemption is granted to buyers of TPS flats, I think this will not be of great help to them because the problem currently plaguing them is the BSD. I opine that all these cases have their uniqueness, and we will examine why purchasers were exempted though they did not buy TPS flats in the capacity of HKPRs or their close relatives, and under what circumstances will the BSD apply. We think these cases should be handled on a case-by-case basis.

The Government considered it inappropriate to grant full exemption of the doubled AVD because HKPRs buying their first homes will be exempted under our original proposal. What is more, many old buildings are of very low value and buyers are mostly grass-roots people. Judging from the integrity of the policy, we think first-home buyers should be exempted. Therefore, if exemption is particularly granted to buyers of TPS flats in some special cases, it would be unfair to other people. They may query why they cannot enjoy greater exemption in the buying old flats when even non-HKPR home buyers can be exempted. This is our line of thinking considering the integrity of the policy.

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We have examined the cases cited by Mr WU Chi-wai and other Members, and have taken proactive follow-up actions in the Bills Committee. In order to help them, we prefer to do so on a case-by-case basis. Introducing amendments to the Bill may not do much help to them because, after all, they are subject to the BSD. Furthermore, there are special reasons behind each case which warrant our consideration. We therefore consider the present proposal the best solution, but not introducing legislative amendments to the Bill relating to the doubled AVD.

The Government has not missed out this point, but of course, we may have divergent views in the course of discussion, which I think is the case. Members asked why exemption cannot be provided in view of the small number of cases. Of course, the number is pretty small for various kinds of cases, but if we provide exemption based on the number of cases, the law itself will lose its fairness. Therefore, in this case, I think the practicable approach is to handle on a case-by-case basis. Even if buyers of TPS flats in those 60 cases were exempted from the doubled AVD, the benefit is negligible. The problem to be dealt with is actually the BSD.

We have been having an extended debate since 9.00 am. While Members have stated their grounds, the Government has also indicated its position. Perhaps I may not be able to convince Members, but I do suggest them not to support the adjournment motion under discussion. Rather, Members should continue to speak on the Bill and then put it to vote, with a view to bringing this Bill forward today. I wonder if we can proceed to the Third Reading of this Bill today, but I hope that Members will consider the overall progress of the Bill. As we have already spent quite some time on discussing the matter, Chairman, we should move on and put the matter to vote.

CHAIRMAN (in Cantonese): Before other Members speak, I wish to remind Members that we are discussing the motion to adjourn the proceedings of the committee proposed by Mr LEUNG Kwok-hung pursuant to Rule 40(4) of the Rules of Procedure.

According to the Rules of Procedure, if the motion is agreed to, the Council shall resume and we no longer can continue to deal with proceedings concerning the Stamp Duty (Amendment) Bill 2013 until the responsible public officer has given notice to resume the debate of the Bill.

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MR LEUNG KWOK-HUNG (in Cantonese): Chairman, given the importance of the matter, I would like to seek your advice on a question. According to what you have just said, does it mean that if the public officer concerned intends to resume the proceedings on this Bill, he must give notice, say, seven or five clear days in advance, or he can be dispensed with the notice requirement so long as the Chairman has granted leave to him? This point is very important.

CHAIRMAN (in Cantonese): Mr LEUNG, I have to give a clear explanation to Members.

Committee is now scrutinizing the Stamp Duty (Amendment) Bill 2013. If this motion to adjourn further proceedings of the committee is agreed to, the Council shall resume and proceed to the next item of business on the Agenda, namely, the resumption of Second Reading debate on the Marriage (Amendment) Bill 2014, and no proceedings on the present Bill may continue at this meeting.

The public officer concerned can of course request that the five-day notice requirement be dispensed with, in order to resume the proceedings on the Stamp Duty (Amendment) Bill 2013. Nonetheless, unless another Council meeting is to be convened, I am afraid that proceedings on this Bill can only continue when the Council resumes in October. I hope Members would understand the consequence resulted if the motion that further proceedings of the committee be now adjourned is agreed to.

MR LEUNG KWOK-HUNG (in Cantonese): Chairman, I do not think your explanation is clear enough because as far as I know, the Chief Executive may write to you requesting for an additional meeting to be convened. You have not explained the entire process. When the Chief Executive holds that …

CHAIRMAN (in Cantonese): Mr LEUNG, please sit down.

In case of emergency, the President of the Legislative Council may of course convene a special meeting. If the Chief Executive considers it necessary, he can also request that an emergency meeting of the Council be held.

Secretary for Financial Services and the Treasury, please speak.

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SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Having heard the Chairman's explanation just now, I understand that if this motion to adjourn further proceedings of the committee is agreed to, this Bill will suffer from serious delay. Although Mr LEUNG Kwok-hung has moved this motion, I do not know if there is any scope for him to withdraw it? Regarding Mr WU's amendments, there are in fact enough Members in the Chamber to proceed with further discussion and voting. Is there any scope for Mr LEUNG to withdraw the motion?

MR LEUNG KWOK-HUNG (in Cantonese): Chairman, I also want to speak on this point. Public officers are very honourable. Why would they ask you to give them some more time, say, 30 minutes? Our duty is to monitor public officers, but they do not want to be monitored. If public officers refuse to table their matters to the Council, it is meaningless for us to hold meetings. If …

CHAIRMAN (in Cantonese): Mr LEUNG, as you have already moved the motion, you cannot withdraw it unless there is no objection from other Members. If you do not intent to withdraw the motion, Committee will proceed to deal with it formally according to the Rules of Procedure.

MR LEUNG KWOK-HUNG (in Cantonese): I would like to ask the Chairman: If I withdraw the motion, can I or other Members move another motion to adjourn further proceedings of the committee again during the Committee stage at this meeting?

CHAIRMAN (in Cantonese): There is no provision in the Rules of Procedure stipulating that if a Member moved a motion that further proceedings of the committee be now adjourned and withdrew it subsequently, he may not move the motion again at a later stage during the same meeting.

MR LEUNG KWOK-HUNG (in Cantonese): In that case, I now declare that I withdraw the motion to adjourn further proceedings of the committee, so that Secretary Prof K C CHAN can discuss with John TSANG, the "home-staying man", as to whether any concession can be made. Meanwhile I will speak on 16976 LEGISLATIVE COUNCIL ─ 15 July 2014 other matters. I hope the Government can really make some concessions after holding discussions with the FTU or other parties concerned. Nonetheless, I reserve the right to move again a motion to adjourn further proceedings of the committee in due course if necessary.

CHAIRMAN (in Cantonese): Mr LEUNG has previously moved a motion that further proceedings of the committee be now adjourned. But he now requested to withdraw the motion. Does any attending Member have any objection?

MR JAMES TO (in Cantonese): Point of order. Chairman, I am thinking, if no unfairness is created for other Members, is it possible to suspend the meeting for 30 minutes, so that the Government may, say, subject to your permission, move without notice as required, amendments that are exactly the same as Mr WU Chi-wai's?

Chairman, if Mr LEUNG Kwok-hung withdraws his motion that further proceedings of the committee be now adjourned, does it mean that he cannot move the motion again for the rest of the Committee stage?

CHAIRMAN (in Cantonese): As I have already said, the situation is not what you have just mentioned. Mr LEUNG has moved the motion and then withdrawn the same before any debate or voting. Hence, should any Member move the same motion anytime at a later stage, it would not contravene the Rules of Procedure.

MR JAMES TO (in Cantonese): Chairman, point of order. At this moment, which Member can request that the meeting be suspended, so that the Secretary …

CHAIRMAN (in Cantonese): Any Member can make a request that the meeting be suspended, and I will consider such request. Nonetheless, as Mr LEUNG Kwok-hung has moved to withdraw his motion that further proceedings of the committee be now adjourned, the Committee must deal with it first. Does any Member oppose to Mr LEUNG withdrawing the relevant motion?

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If no, I declare that Mr LEUNG Kwok-hung has withdrawn the motion he moved to adjourn further proceedings of the committee.

At the Member's request, I suspend the meeting for 15 minutes.

10.27 am

Meeting suspended.

10.47 am

Committee then resumed.

CHAIRMAN (in Cantonese): Council now continues with the VII joint debate.

Secretary for Financial Services and the Treasury, do you wish to speak?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, in the debate just now, I heard the exchanges and views of many Members. I would like to explain clearly the Government's stand on Mr WU Chi-wai's amendments, as well as our rationale and views. Of course, I have heard the views of Members. I have also heard many people asking why the Government does not handle these cases with discretion. While we certainly have our own policy considerations and have put forward our rationale, it seems that Members still have many concerns regarding these amendments.

From an overall perspective, I hold that this Bill itself, which relates to the levy of the doubled ad valorem stamp duty, is important. Nonetheless, the scope of Mr WU Chi-wai's present amendments is relatively small, and the amendments only involve certain technical considerations.

What I would like to say is that the Government is not only concerned about securing enough votes to pass its amendments. In fact, regarding these amendments, I consider that individual Members have expressed their views, while the Government also has its own stance. But we are not insisting that this 16978 LEGISLATIVE COUNCIL ─ 15 July 2014 is the only acceptable option. We just want Members to strive to put such amendments to vote as soon as possible, so that we can move on because time is running out. I implore Members to bear in mind the overall interest of the society.

Mr CHAN, although we are not insisting that the Bill must be passed tonight, I consider that we should not spend time needlessly on those relatively simple and minor amendments. I hope Members can bear in mind the overall interest of society, so that the Council can complete dealing with these amendments and proceed to the discussion on more important amendments. That is all I want to say about the Government's stand. I would like to reiterate that while we have our own stand on this matter, we are not insisting that this is the only acceptable option.

Thank you, Chairman.

MR DENNIS KWOK (in Cantonese): Chairman, I hope the Secretary can clarify whether there is a fundamental change of his stand on Mr WU Chi-wai's amendments or … Chairman, can you ask the Secretary to elucidate on his speech just now, that is, what exactly is his present stand on the proposed amendments of Mr WU Chi-wai?

CHAIRMAN (in Cantonese): Mr KWOK, this is your speaking time now. Of course, as you speak, you can raise your queries or ask the Secretary for a reply. As Members all know, there is no provision in the Rules of Procedure limiting the number of times that public officers or Members may speak during the Committee stage. Hence, you can express your views first. If the Secretary wants to reply, he will of course have the chance to do so.

MR DENNIS KWOK (in Cantonese): Okay, Chairman, I will then continue with my speech, assuming that Mr WU Chi-wai's amendments have yet to be supported by the Government. However, I heard the Secretary say just now that the Government's stand has changed. Perhaps he can respond to this point later and explain to Members what exactly the change in the Government's stand on the amendments is.

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On behalf of the Civic Party, I speak in support of the amendments proposed by Mr WU Chi-wai. The reasons for our support, both policy-wise and statistics-wise, have been mentioned by a number of Honourable colleagues just now. But I might as well repeat again. Basically, the amendments proposed by Mr WU Chi-wai are concerned with property transactions under the Tenants Purchase Scheme (TPS). Obviously, such flats are not the main target of the Government's "double curbs" measures for curbing speculation. Simply put, such flats are in no way the intended target of the Government.

Looking back to past records, the TPS only covers 39 public rental housing (PRH) estates, or some 190 000 flats, across the territory. So far, only 120 000 flats have been sold, and the entire scheme was completed in 2006. Insofar as the entire property market is concerned, such flats are definitely insignificant as both the number and price of such flats are relatively low. Obviously, this type of flat is not even one of the targets of the "double curbs" measures, not to mention that no objective data is available at all to show a trend of speculation for such flats in the market. Hence, why does the Government stand so firm and only agrees to revisit its stand at the eleventh hour … seeing that the amendments are likely to get passed with enough votes? Why does it not face the matter squarely at an earlier time, and only express regrets at the very last moment?

Let us consider the reason given by the Government for refusing to accept the amendments. It often cited the concern about the amendments having possible "read-across effect". Despite repeated explanations, the Government has still failed to tell us what is meant by "read-across effect"? What are the implications of this "read-across effect"? How will the entire policy be affected? The Secretary has never given us a convincing explanation. It is only until now that I know the Government does not have any substantial reasons to support its so-called "stand". Hence, the Civic Party supports the amendments proposed by Mr WU Chi-wai.

As mentioned by other Members just now, there are stringent eligibility requirements for the TPS flats, and the transactions are subject to both legal restrictions and administrative measures. Hence, there is hardly any element of speculation on these properties as the size of market for this type of property speculation is very small.

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As a matter of fact, these amendments clearly reflect that the entire policy formulated by the Government is very crude. It is so crude that the Administration does not even care whether the policy will affect the majority in society or just a handful of people, as in the case of those covered under the present amendments. The Administration pays no heed at all. It just wants to put everyone under the coverage of the Bill, disregarding whether those people are the Government's intended targets for curbing speculation in the property market.

I hope the Secretary can state clearly what are the changes in the Government's present stand on the amendments proposed by Mr WU Chi-wai? While he mentioned that the Government's stand had remained unchanged, it seemed that he had made certain concessions subsequently. I hope the Bureau can give Members a direct response.

Chairman, I so submit.

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, do you wish to speak?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Actually my stance has not changed at all because we have already considered the matter carefully. But of course, I may not be able to present all the details we have considered when delivering my speech just now. Nonetheless, I have been listening to the stands expressed by Members, as well as the strong voice in the Council that even the individual cases in this situation can be dealt with by the law.

In this regard, it can be said that the gentlemen, though having divergent views, would maintain a harmonious relationship. We may not necessarily see eye to eye on the question that individual cases should be handled from this perspective, this is, should be handled by the law. If we are given the choice, we will not adopt such an approach. Instead, we will handle on a case-by-case basis.

Nonetheless, if Members hold that individual cases should be dealt with by the law, even though it may not be the best approach in our view, the matter should ultimately be decided by Members of the Legislative Council. While the LEGISLATIVE COUNCIL ─ 15 July 2014 16981

Government has its own stance, I will not insist that our stance is absolutely correct. If Members consider that individual cases should be dealt with by the law, notwithstanding our disagreement, I will not insist on our stance.

MR FREDERICK FUNG (in Cantonese): Chairman, I speak in support of the motion moved by Mr WU Chi-wai.

First of all, basically the Government introduces this Bill to levy the double stamp duty (DSD) to curb speculators, that is, buyers who resell their properties for the purpose of making profits. But obviously, regarding the Tenants Purchase Scheme (TPS), neither the properties (the flats) nor the prospective buyers are the targets of the Government's legislation. Hence, they should basically be granted exemption.

First of all, in my view, people living in public rental housing (PRH) invariably fall under several categories, namely, low-income families which pass the means test, victims of natural and man-made disasters and kaifongs affected by urban renewal projects. As a matter of fact, if PRH tenants have a relatively high income, they would eventually move away from the PRH units by either purchasing private residential properties or Home Ownership Scheme (HOS) flats as Green Form applicants. For those who still live in PRH units, most of them cannot afford HOS flats, but if they want to avoid the draconian and nuisance measures of the Housing Department, such as bi-annual rent increases, the well-off tenant policy, periodic household surveys, and so on, they will purchase their units under the TPS. Of course, low-income families can also afford to do so given the multiple discounts offered under the TPS.

Hence, that is the background. The Housing Authority is the seller, while the buyers are tenants now living in PRH units who have neither the intention nor the means to purchase HOS flats. Hence, considering the background of the TPS flats and the Government's intention to curb the speculative activities, it is quite obvious that this group of people are not in any way the intended targets.

Hence, if the Government pushes through the Bill, innocent people will be caught inadvertently. As mentioned by Mr Dennis KWOK just now, Members are well aware of the size of the TPS market. In total, there are only 190 000 flats, and among them, only 120 000 flats have been sold. Hence, they only account for a very portion in the property market. Given the relevant policies and background, I hold that it is inappropriate for this group of people to be 16982 LEGISLATIVE COUNCIL ─ 15 July 2014 caught under the Bill. Hence, I support the amendments proposed by Mr WU Chi-wai.

MR LEUNG YIU-CHUNG (in Cantonese): Chairman, the two replies given by the Secretary are nothing but ambiguous and muddled. Also, he dares not state clearly the Government's stance. In his first reply, he pointed out that the Bill was to deal with a major problem or a major principle, while the amendments only dealt with a minor problem or a minor principle. Hence, Members should pass the Bill in its entirety as soon as possible. By calling upon Members to pass the Bill in its entirety as soon as possible, he gave us the impression that he actually wanted Members to support and not object the Bill. Yet, when he spoke the second time, he suddenly pointed out that notwithstanding the divergent views held by Members and the Government, the Government would not insist on its viewpoint, and the views of Members were also acceptable. What does it mean really? Ultimately, the Government dares not state clearly that "I support your view", and, on the other hand, it dares not state that it objects our view. Not only should such an ambiguous attitude be discouraged, it should also be condemned because as a Director of Bureau, why can't he state the Government's stance clearly?

As pointed out by the Secretary in his speech just now, the TPS involves only 5 000 households, and 60 cases have arisen. The Secretary emphasized that the major difference between the Government and the Council is that the Council considers that the problem should be dealt with by legislation, while the Government considers that the problem should be dealt with on a case-by-case basis. Chairman, I would like to ask the Secretary what principle the Government adopts when handling these cases. As we all know, not all cases would be accepted by the Administration because the criteria adopted by public officers often vary substantially, and individual officers would handle the cases in their own way. Comparatively speaking, if a clear legislation is enacted, all cases would be handled in accordance with the law. Nonetheless, as the Secretary indicated that the problem would be dealt with on a case-by-case basis, it means that some cases would be accepted, some would not. As a matter of fact, not all cases have been accepted. If all cases have been accepted, we need not request for enactment of legislation as the Government can just grant exemption to those 60 households. Hence, can the Secretary state clearly how such cases would be handled by the Government?

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Today, we are most concerned that some cases would not be accepted by public officers. That is the crux of the problem. In his later reply, can the Secretary clearly tell us that most of these cases would be accepted by the Government, and there is no cause for concern. Can the Secretary give us this reply? If he can, the amendments would become unnecessary, and it does not matter. If the problem can be resolved, I think Mr WU Chi-wai may not necessarily insist that his amendments be passed. But is the Government prepared to do so? If it is, will the Secretary tell us openly. Moreover, Chairman, the market will not be affected if exemption is provided to the tenants under the TPS because the TPS had already been terminated, and only several estates are involved. Hence, its impact on the market would be minimal though I dare not say that there is no impact at all because nothing is certain. On that account, why must the Secretary still insist on his view? It is hardly surprising that so many Members have criticized the Government for being overbearing and draconian. Being overbearing for a good cause is desirable. But if the Government is overbearing for an evil cause, the consequences are undesirable for society will complain about the Government's indifference to people's hardships. By introducing the "double curbs" measures, the Government intends is to help the general public so that property prices will no longer be unaffordable to them. However, its present stance has actually affected the innocent. What good will it bring to us?

Chairman, I really hope that the Secretary can clarify one more point. He often said that the problem can be dealt with on a case-by-case basis. But what approach does he actually have in mind? If the Secretary can explain clearly, I may consider the Government's approach. But can the Secretary disclose publicly the relevant criteria for handling these cases?

Chairman, I so submit. Lastly, I will also support Mr WU Chi-wai's amendments.

IR DR LO WAI-KWOK (in Cantonese): Chairman, the amendments proposed by Mr WU Chi-wai to provide exemption under the Tenants Purchase Scheme (TPS) have been discussed by the Business and Professionals Alliance for Hong Kong (BPA). As I mentioned in my speech last night, the Government introduced the "double curbs" measures to curb improper speculation, and to suppress the exorbitant property prices. However, it seems that the target has now been unduly expanded, in particular, to cover offices and shops, as well as 16984 LEGISLATIVE COUNCIL ─ 15 July 2014 properties acquired by small and medium enterprises for self-use for business operation. This is really mind-boggling.

Regarding the amendments proposed by Mr WU Chi-wai, Members who have spoken have explained the actual situation clearly. As mentioned by the Secretary, many cases have indeed arisen, and the Government is inclined to deal with them on the merits of each individual case. Speaking of the cases, many legal issues would be involved. Such cases are not that many; there is also a saying that since only a handful of cases are involved, there is no need to provide exemption specifically. From the perspective of the integrity of legislation, colleagues from the Government have insisted on maintaining the integrity of legislation. In that case, does it mean that the Government is monolithic, as mentioned by some Honourable colleagues? I consider that the Government's stance is shaky.

Nonetheless, from the speeches made by the Secretary, especially the last one, my understanding is that while the Secretary has stated the Government's stance, he has, at the same time, hinted that the Government is not monolithic. In my view, if that is the Government's attitude, it would indeed be more preferable. Hence, regarding the said exemption, it is indeed worth supporting from an actual point of view. Under the circumstances, the BPA's stance after discussion is that we will support Mr WU Chi-wai's amendments. Regarding the other amendments, we will state our views in due course.

Thank you, Chairman.

MR LEE CHEUK-YAN (in Cantonese): Chairman, simply put, the Government is idiotic and does not want to lose face. The whole issue is nothing but idiotic. The Government has, for no reason at all, included tenants under the Tenants Purchase Scheme (TPS) under the Bill. Many of them are public rental housing (PRH) tenants and labourers. I do not know the voting preference of Mr POON Siu-ping and the Hong Kong Federation of Trade Unions. The people in question are our members. How can they not support the proposal to provide exemption under the TPS?

(THE CHAIRMAN'S DEPUTY, MR ANDREW LEUNG, took the Chair)

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The Government has been acting like an idiot. In order to save face, it has targeted the innocent arbitrarily. The Secretary's speech just now is yet another idiotic face-saving act. He did not want to admit that the Government had changed its stance and agreed to provide exemption under the TPS. He did not want to lose face and make known its new stance. That's it. Hence, Members should no longer pay attention to the Government. What matters most is that all Members in this Council should ask themselves truly whether they would act in the same idiotic way as the Government? The matter is as simple as that. Thank you, Deputy Chairman.

DEPUTY CHAIRMAN (in Cantonese): As Mr LEUNG Kwok-hung is not in the Chamber now, I now call upon Mr Tommy CHEUNG to speak.

MR TOMMY CHEUNG (in Cantonese): Deputy Chairman, upon hearing the speech just made by the Secretary, I have a slightly different interpretation from that of other Honourable colleagues. In my view, the message is quite positive. In other words, the SAR Government and the Legislative Council might … Perhaps the relationship between the executive and the legislature can draw closer.

Secretary, in order to save time so that the Council can complete the scrutiny on the Bill tonight, I would like to suggest whether you can … Deputy Chairman, I may not be as familiar with the Rules of Procedure as you. If Mr WU Chi-wai is willing to withdraw his amendments, and the Secretary has the Chairman's permission to dispense with required notice to move without notice the amendments on behalf of Mr WU Chi-wai, he can in fact consider handling the matter in this way. If the Secretary is willing to adopt this approach, we can discuss with Mr WU Chi-wai. This would be more preferable than continuing with the present discussion. If the Committee stage amendments (CSAs) are moved by the Secretary, there is no need for Members to move CSAs. I know this option may not sound good, but can the Secretary consider adopting this approach?

MR JAMES TO (in Cantonese): Simply put, it seems that some Honourable colleagues or the Secretary are holding the view that the problem can be dealt with on the merits of each individual case. As many Members were not in the Chamber just now, I have to reiterate that the problem cannot be dealt with on the 16986 LEGISLATIVE COUNCIL ─ 15 July 2014 merits of each individual case because under our tax regime, stamp duty is payable immediately under the specified conditions, and no discretion has been provided to withhold payment. One can say that this is a good legal provision because of its high degree of certainty. But under the circumstances, it cannot allow cases to be dealt on a case-by-case basis.

What is the Secretary's current proposal for handling the cases? The answer involves two measures, namely, accepting payment of stamp duty by instalments and providing waiver for payment of penalty. As we all know, stamp duty should be payable within the period specified by law. Otherwise, a surcharge at a certain percentage of the transaction price would be imposed as penalty. On compassionate grounds, the Government would waive the penalty but not the stamp duty.

Moreover, regarding the payment of stamp duty by instalments, I once asked the Government at the Bills Committee whether the annual instalment would be $1? If $1 was paid annually, it would take 60 000-odd years to pay up a sum of $60,000-odd. By that time, inflation might have eaten up the whole sum of $60,000-odd. But it was quite alright so long as all the instalments were timely paid in full. If the Government did not agree to the annual instalment of $1, I then suggested setting the annual instalment at $100, and see if it was affordable to the general public.

But the question is: That is not the approach taken by the Government. The annual instalment would be at least several thousand dollars. If the annual instalment ranges from several thousand to several tens of thousand dollars, it would already be unaffordable to the persons concerned in the several dozens cases. We remain unconvinced unless the Commissioner of Inland Revenue or the accountable Director of Bureau can tell us the largest discretion that can be exercised by the Commissioner of Inland Revenue? Will the persons concerned be allowed to pay only $100 annually? If so, they can pay up a sum of $60,000 in 600 years. At least they do not have to be so miserable right away.

Of course, I hope that the amendments can be passed so that the $60,000-odd will not be levied by the Government because such a levy should not be imposed in the first place. But if the amendments are negatived only by a small margin, say, one or two votes, I would still take this final chance to ask the Government what would be the minimum amount levied for each instalment with the exercise of discretion? Would it really be an annual instalment of just $100?

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MR LEUNG KWOK-HUNG (in Cantonese): Deputy Chairman, I find the Secretary's speech really ridiculous. Today, Members have vied to speak on this matter for so long, only because they want to discharge their duties as Members of the Legislative Council and draw the Government's attention to its wrongdoings that they have noticed. If the Government does not heed our advice, we will use our votes to stop the Government. That is the original intention of Mr WU Chi-wai's amendments. If we have enough supporting votes, I do not care what the Government says. My attitude is the same as the Government's; our only difference is that we are being reasonable but the Government is not.

According to the Government, it will address the relevant problems in future. But we are now discussing the legal framework. Should the affected persons take their cases to the Court in future, they have to pay, out of their own pocket, for the legal costs. The Legal Aid Department will not provide them with legal aid, right? Hence, it is not appropriate for the Secretary to tell us today that Members should pass the Bill first today, and he will deal with the cases later. At this eleventh hour, only three options are available. First, the Secretary should call John TSANG, the "home-staying man", and tell him that things are now going wrong. The "home-staying man" John TSANG will then call the "super home-staying man" LEUNG Chun-ying and tell him that things are going wrong and the Government must concede.

Several options are available. The Government can withdraw the proposal immediately so that no voting will take place. It can then negotiate further with Members. When Members of the Hong Kong Federation of Trade Unions (FTU) negotiate with the Government, they may say, "Can you present a better proposal? If you do not want to give credit to Mr WU Chi-wai, is it alright to give credit to Miss CHAN Yuen-han? We have also endured humiliation on your behalf." The Government can insist that the amendments should be proposed by Miss CHAN Yuen-han or Ms Starry LEE. That is open for discussion. But the problem is that the Government is unwilling to have any discussion. If the Bill is passed today, nothing can be done afterwards, that is where the problem lies. Under our existing political structure, the Bills Committee of the Legislative Council has scrutinized the Bill for such a long time. It clearly shows that the Government is in the minority. Then why is it so obstinate?

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In fact, "689" will no longer have any friends. Why? Because he is always asking his supporters to endure humiliation on his behalf and always vote for the Government's proposals even though it can give no reason why these proposals are worth supporting. Hence, as the President of the Legislative Council has said, the problem with the relationship between the executive and the legislature is not caused by a few radical Members. Looking back in this incident, Mr WU Chi-wai is not a radical Member, and both the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) and the Business and Professionals Alliance for Hong Kong (BPA) are not satisfied with the Government's proposal. The Liberal Party is not a radical party either, and they merely oppose the Government on this matter. How come a new camp called the "Hong Kong camp" is now opposing the Government? LEUNG Chun-ying is right in saying that in Hong Kong, we no longer have a "TANG camp" or "LEUNG camp", only the "Hong Kong camp" exists. Now a "Hong Kong camp" has emerged in the Legislative Council to oppose him.

As the saying goes, "A straw shows which way the wind blows." In this debate, it is clear that the Government's logic has become even more lopsided. The Government does not even agree to make such a small concession. The Government has been stressing the so-called consistency in this matter. Regarding Mr James TO's amendments which were negatived yesterday, the Government was not willing to accept the proposal because only 3.4% out of the 50 000-odd cases were involved. Of all the properties in Hong Kong, how many flats (that is, those priced at $10,000-odd per sq ft) are the target of the Government's measures to curb speculation? What is the per-square-foot price of flats bought by public housing tenants under the Tenants Purchase Scheme (TPS)? Buddy, what are you talking about? Why do the latter cases have anything to do with the Government's policy objective? If these people are affected by the Government's pigheadedness, and the Council cannot give them protection, what is the use of this Council? The whole thing is immoral; do you get it, Mr Abraham SHEK? It is alright for a person to lose his head or running around like a headless chicken, which is an English idiom, so long as he has the heart to put things right. The Secretary can go back and check it out.

Deputy Chairman, just now, I should have made a speech and moved the motion that further proceedings of the committee be now adjourned. In fact, I can move the motion again now, right? If I move it again, we will have another debate. But the Government is still acting stubbornly. K C CHAN, you are a government official; Ms Starry LEE can no longer help you. I am all eyes on your performance. How can you convince Members from different groupings in LEGISLATIVE COUNCIL ─ 15 July 2014 16989 this Council, including Mr Abraham SHEK who is now present in the Chamber? How can you convince them one by one? Members are all present in the Chamber. But you have done anything. What are you thinking? Are you praying for a miracle? Do you want to tell Members of the DAB, "Though your party has stated support for Mr WU Chi-wai's amendment, you can still refuse to show up at the time of voting, say, on the pretext of going to the toilet? Is that what you are thinking of? Do you want to ask Members to use a special way to evade their responsibility? How can it be done?

Hence, Deputy Chairman, please ask John TSANG to stop writing his blog. Let me take him for a walk around the public rental housing (PRH) estates in Fan Ling. Not only will I not hurl things at him, I would help him avoid the things hurled at him. Would he dare go with me? Would he dare take such a trip? Would he dare explain his reasons to the people? I now throw down the gauntlet to John TSANG. When he writes his next blog post, please explain why people who buy 100 properties under one instrument need not pay double stamp duty (DSD), while buyers under the TPS (who are not the Government's intended targets) cannot get the compassionate treatment of the Government? I am talking about compassionate treatment. Should the Government not be compassionate towards its people? Would he want to come with me? As it is summer vacation now, I can take him to my constituency, Fan Ling, so that he can proclaim his message. I invite John TSANG to condescend himself and attend a forum with me. Then he can tell the people, "The Government can do nothing about it. We must be fair. Hence, exemption from DSD payment will be granted for the acquisition of 100 properties under one instrument, so that they can be sold for speculation purpose. But for you guys, I am sorry because our consistency is applied inconsistently. We are giving you favourable treatment as we want you to pay more tax to the Government." Is that alright?

Today, while I try to reason with the Secretary, he remains unmoved. I would like to ask the Secretary: "What do you have in your mind? Do you want the amendments to be passed? If so, please wink once; if not, please wink twice." That is okay. He is sitting on that side of the Chamber, so everybody can see him.

Deputy Chairman, the Government refuses to yield. Three options are available to the Government. The first one is to withdraw its proposal so that the Council can discuss the dispute again after the summer break. We will discuss it again whenever the Government is ready to re-submit its proposal. 16990 LEGISLATIVE COUNCIL ─ 15 July 2014

Yet the Government does not want to resolve the dispute; instead, it wants the dispute to go on. Alternatively, if the Government agrees with Mr WU Chi-wai's views, it can amend the Bill right away. But the Government also rejects this suggestion. In that case, the Government is forcing us to put the amendments to vote. Frankly speaking, if the Government loses in voting, who else can it blame but itself? Hence, Deputy Chairman, I invite the Government to revisit its stance because honestly, there is no good news for LEUNG Chun-ying's Government lately. Another piece of bad news may really lead to his downfall.

I would like to quote from one of John TSANG's blog posts. He said, "The delay in passing the Bill to effect the double stamp duty means that law firms have to keep an enormous amount of duty paid, most of it levied on non-residential properties. The sector has repeatedly relayed to us the worry about the risk of keeping the money." ― what sector is he talking about? Mr Abraham SHEK, is it your sector or the legal sector? I have no idea what that is. What is the technical difficulty referred to by John TSANG? It is the concern relayed to him by the sector that too much money is being kept by the law firms. He is not concerned about the interest of small property owners under the TPS which we are discussing now. Separately, "According to the provisional figures soon to be released by the Rating and Valuation Department for the month of May, the increase in residential property prices has obviously gained momentum in May. With a relatively large influx of capital into Hong Kong last week, the Monetary Authority injected HK$16-odd billion into the market after the strong-side Convertibility Undertaking was triggered." The Financial Secretary stays home to write his articles "behind closed doors", instead of resolving the question under discussion by the Council now. Isn't that right?

(Mr TAM Yiu-chung raised his hand in indication)

DEPUTY CHAIRMAN (in Cantonese): Mr TAM Yiu-chung, what is your point?

MR TAM YIU-CHUNG (in Cantonese): I consider the speech just made by Mr LEUNG Kwok-hung not directly related to the amendments under discussion presently. Our time today is very precious. Should Members speak directly on the question under discussion according to the Rules of Procedure?

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DEPUTY CHAIRMAN (in Cantonese): Mr LEUNG Kwok-hung, please speak on the amendments covered in this joint debate.

MR LEUNG KWOK-HUNG (in Cantonese): Deputy Chairman, I think Mr TAM Yiu-chung is being very unreasonable. I was making my case by quoting the statements from the public officer in charge of this matter. How dare he stop my speech! Mr TAM Yiu-chung, do I have the right to make a quotation? Are you saying that John TSANG's blog posts are unrelated to this matter? If so, why did he write all that stuff?

DEPUTY CHAIRMAN (in Cantonese): Mr LEUNG, you should face the Chairman when you speak.

MR LEUNG KWOK-HUNG (in Cantonese): Yes, Deputy Chairman. I would like you to ask Mr TAM Yiu-chung: John TSANG wrote a blog post last week specifically to call upon Members of the Legislative Council to put the Bill to vote and pass it as early as possible. When I quoted his words, Mr TAM Yiu-chung said that they had nothing to do with the subject matter. Was John TSANG talking nonsense, or was I quoting him indiscriminately? Or what else? Those were not my words …

DEPUTY CHAIRMAN (in Cantonese): Mr LEUNG, Committee is now discussing Mr WU Chi-wai's amendments. Please speak directly on those amendments.

MR LEUNG KWOK-HUNG (in Cantonese): Deputy Chairman, you are brilliant. I am explaining why Honourable colleagues should not vote for the Government because its consideration is different from ours, and it has not specifically addressed the question raised by Mr WU Chi-wai. In fact, Mr WU Chi-wai wants to hear Secretary Prof K C CHAN saying that, "I know Members are facing a painful decision. You pass the Bill first, and I will give exemption later." But that has not been written down expressly, right? Hence, the Secretary's words could be just saliva, and Mr TAM Yiu-chung might have been taken in. In that case, I must of course caution Mr TAM Yiu-chung, particularly 16992 LEGISLATIVE COUNCIL ─ 15 July 2014 because after striving for universal retirement protection over the past 20 years or so, he has now changed his stance from support to opposition.

Hence, Deputy Chairman, I will not speak again after I finish this speech because I also want to put the amendments to vote and defeat John TSANG. My point is: I hope Honourable colleagues of the FTU will continue to stay away from the Chamber because they have a deal with the Government. I do not know what the deal is. A man must honour his own words. If they come inside the Chamber, they have to vote. If they are not in the Chamber, they will have no credibility. You can tell them my words. Members of the DAB would vote for the Government. Without the physical presence of Members of the DAB, there is really no need to take a vote. What I really want to say is that I know "Miss Han" is now watching, right? Mr WONG Kwok-hing should also consider how many cans of fried dace in black bean sauce can be bought by the TPS buyers with the money saved. Buddy, although I have yet to make the calculation, I guess $100,000-odd can buy so many cans that one can eat for a lifetime.

I hope Mr WONG Kwok-hing and Miss CHAN Yuen-han can uphold their credibility, but they can do so in a clever way. If both their bodies and spirits are not present, they need not take a vote. Once again, I implore Members of the FTU to use some wisdom and stay away from the Chamber.

Thank you, Deputy Chairman.

MR CHAN KIN-POR (in Cantonese): Deputy Chairman, we are in fact facing a dilemma regarding these amendments because the Government's approach is completely different from Mr WU Chi-wai's. In the latter case, the measures are written as statutory provisions so that certain people will be granted exemption. But we should note that there are in fact many similar cases in society which are beyond our imagination. If the legal approach is adopted for this matter, other cases may not necessarily be handled on a case-by-case basis as a result. Hence, we hold that the Government's approach of handling the problem on a case-by-case basis cases has its own advantage, that is, certain flexibility can be provided to handle other scenarios which we cannot foresee today. Even with the passage of Mr WU Chi-wai's amendments today, I hope the Government can give special treatment to deal with cases which we have not considered today. To show our support for the Secretary's approach to deal with the problem on a LEGISLATIVE COUNCIL ─ 15 July 2014 16993 case-by-case basis, I will maintain my original approach. In other words, I will continue to abstain from voting, which is equivalent to opposing the amendments because I think it is more appropriate to deal with the problem on a case-by-case basis.

Nonetheless, I hope Members would not become overjoyed. Members should note that if we hold that the relationship between the executive and the legislature has become precarious, and Members are still censuring the Government even though it has conceded, why should it concede again in future? I hope Members can respect and commend the Government for making changes to suit the situation. I also hope that when Members have certain ideas in future, which are considered reasonable by the Government, the Government will also change its policies. It is just natural for the society is particularly concerned about individual victims.

Not everyone is concerned about matters of major principles. Moreover, people may have different views about the importance of achieving short-term and long-term effects. Hence, it is difficult to ask everyone to act according to a particular person's desire. But individual Members may hold that certain major principles are very important, and the Government's policies should not always be affected by public opinion. If a person considers that some measures are good for Hong Kong, he should insist on his stand; if certain measures will indeed do harm for certain people, we must give them more consideration. In my view, the Government should sometimes play the role of a leader, and stand firm for measures that are not popular in the short run but beneficial in the long run. It should hold fast to what is good, depending on the actual circumstances.

Hence, I believe that we have several Members holding similar views today, and we would insist on not supporting the amendments proposed by Mr WU Chi-wai. Thank you, Deputy Chairman.

MS CYD HO (in Cantonese): Deputy Chairman, I have never been so nervous about lobbying support for another Member because when I came back this morning, I heard that political parties in the pro-establishment camp, including the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB), the Liberal Party which has an industrial and business background, as well as the Business and Professionals Alliance for Hong Kong (BPA), that is, the political group to which the Deputy Chairman belong, have all indicated support for 16994 LEGISLATIVE COUNCIL ─ 15 July 2014

Mr WU Chi-wai's amendments. Although only a small number of public housing tenants are involved, this is indeed an achievement attained through pragmatic co-operation among different political parties and groupings in this Council, which has helped address a livelihood issue of the grassroots.

The Secretary said that the problem should not be dealt with by law. In fact, he is the one who creates the problem by law in the first place. The Government introduces this Bill to increase the ad valorem stamp duty (AVD) ― other forms of stamp duty have of course been implemented previously ― and has increased the burden of non-Hong Kong Permanent Resident (HKPR) buyers who are sitting public housing tenants. For them, several tens of thousand dollars is indeed a big sum of hard-earned savings. We support the amendments so as to prevent the Government from creating even more cases. Indeed, the Secretary has said that the Government will handle the problem on a case-by-case basis. But how is the problem actually dealt with? Instead of demanding duty payment immediately, the Inland Revenue Department will allow the relevant buyers to pay the stamp duty by instalments. However, even though the buyers are allowed to pay by instalments, they still have to pay, unless they are allowed to pay a few hundred dollars by each instalment for a period, say, over 30 or 40 years. But that is definitely not the case now. I am afraid that when the Secretary replies later, he must also tell Members clearly how these cases would be handled in the event that the amendments are voted down by a narrow margin of, say, one or two votes. Can the Government really give them some assistance, or would they still be required to pay several tens of thousand dollars within a year or two?

Deputy Chairman, I must lobby for Members' support again. If Members of the Hong Kong Federation of Trade Unions will abstain from voting for they have pledged to support the Government, they should truly abstain by not entering into the Chamber, so as to give real effect to the meaning of abstention. As we are all know, Members who stay in the Chamber and abstain from voting are effectively voting against the amendments.

Separately, Deputy Chairman, the matter is so urgent that we cannot afford to lose one single vote. When the amendments are put to vote later, I hope you would sit amongst us and vote in support of the amendments. Let the Chairman, Mr Jasper TSANG, chair the meeting. If we lose owing to missing your one vote, it would be highly regrettable.

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Lastly, I call upon Members across all political parties and groupings, regardless of whether we belong to the democratic camp or pro-establishment camp, to practically use our votes this time to achieve something good for the livelihood of the grassroots. Thank you, Deputy Chairman.

MR ABRAHAM SHEK (in Cantonese): Deputy Chairman, having heard the speech just made by Mr LEE Cheuk-yan, I would like to express my personal views on this matter. Although Members of the Business and Professionals Alliance for Hong Kong (BPA) support the amendments proposed by Mr WU Chi-wai this time, we have not opposed the Government either because its approach is premised on the principle of legislation, while Mr WU Chi-wai's amendments are based on humanitarian grounds. He merely wants to help this group of grass-roots people. Therefore, both stands are correct, and there is neither a winner nor a loser in this matter. Both sides have their own reasons and hence, there is no reason to criticize the Government as being idiotic. From the Government's perspective, the Government is not idiotic. If we want to oppose the Government, the opposition camp already has enough votes to do so. But the Secretary has already backed down this time so that the Council can decide for itself how to serve the grassroots from this perspective. Hence, instead of making further criticisms, we should commend the Secretary for willing to take this step forward.

The present case is particularly meaningful because no amendment proposed by Members has ever been passed in this Council since the reunification. This is the greatest achievement attained. Hence, if this matter is taken as some kind of struggle between the Legislative Council and the Executive Authorities, our votes would be regarded as taking sides, and I cannot accept this as a political choice. Should this be a political choice, I would have reverted to the side of the pro-establishment camp and the Government. Hence, Members should stop criticizing Secretary Prof K C CHAN. As I have said before, the Secretary can act on either authority or compassion. Now the Secretary has acted on compassion, and he has not lobbied our support on this matter. Hence, I implore Members to speak rationally.

I have also proposed amendments to this Bill. It is alright even if they are not passed. But we must work with reasons. If Members hold that the relevant amendments are beneficial to the business sector, it is alright. But we must also care about the grassroots, which is what society should do. But Members should 16996 LEGISLATIVE COUNCIL ─ 15 July 2014 not put the Government down as a loser or hail the Legislative Council as a winner just because of this victory. This should not be our approach. In Hong Kong, we must all work in concert for the well-being of the public at large. I believe that this is a common goal of all 70 Members of the Council.

Thank you, Deputy Chairman.

MR JAMES TO (in Cantonese): Deputy Chairman, I have forgotten to mention one point just now. According to the Secretary, even if the amendments are passed, assistance can only be provided in respect of the doubled ad valorem stamp duty (AVD), and not the Buyer's Stamp Duty (BSD) which is as high as 15%. Deputy Chairman, that is why I also hope the Government can introduce the relevant legislative amendments urgently in respect of the BSD. If this Council is strongly of the view that the relevant buyers should be exempted from the doubled AVD, I hope the Secretary can review this view, discuss it afresh with the Executive Council and senior officials in the Government, respect the views of the Legislative Council and then present its legislative amendments on the BSD, so as to relieve the plight of the same group of victims.

Even though the relevant legislation has yet to be amended, I hope the Government can likewise exercise maximum discretion on the levy of the BSD as the duty rate is at an even higher rate of 15%. For instance, can the Government allow the relevant buyers to pay the duty by instalments, say, $100 or $1,000 annually, so as to reduce their burden? As mentioned by Mr Abraham SHEK, the Government should work in accordance with law while paying heed to the actual hardship of the tenants.

Deputy Chairman, let me reiterate that we do not regard this as a war, with one side being the winner and the other, loser. Hence, Mr Abraham SHEK and Members of the Business and Professionals Alliance for Hong Kong, please do not change your stand and vote for the Government. I learn that Members of the Hong Kong Federation of Trade Unions are having a meeting now. At present, Members are merely taking an appropriate, reasonable and justifiable action to support the amendments for the sake of relieving the plight of the relevant tenants.

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MR WONG TING-KWONG (in Cantonese): Deputy Chairman, I admire Mr James TO's attitude. I absolutely disagree with some Members, like Mr LEUNG Kwok-hung just now, who use this matter as a pretext for other purposes. Regarding the Government's Bill to effect the Double Stamp Duty, we have thoroughly studied its impact on buyers under the Tenants Purchase Scheme (TPS). In our view, we should consider supporting the amendments because of the relevant cases. Hence, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) is calling a spade a spade in this matter. We do not support the approach taken by Members of the opposition camp, in particular, a few radical Members, to exploit this case as a pretext to attack the Government. In the negotiation process, we hoped that the Secretary could take on board our views. But as the Secretary had his own considerations, he did not accept our views. Of course, he has his own reasons. But we also have our reasons. This should be the right way for Members to discuss the relevant policies in the Council, instead of using this matter as a pretext to attack the Government, just like what Mr LEUNG Kwok-hung has done. Hence, I commend Mr James TO for the speech he just made.

MR JAMES TIEN (in Cantonese): I note that two Members are waiting for their turn to speak, and I thought I would speak after them. Deputy Chairman, it turns out that Mr Tommy CHEUNG has already spoken on this matter, so I need not speak at length. We are grateful to Secretary Prof K C CHAN for his speech just now. I also consider that this could be the first step towards improving the relationship between the executive and the legislature, not least because the initiative has been taken by the executive. Hence, I also support the view taken by other Members that instead of saying anything more on this matter, we should concentrate on getting the amendments passed.

Thank you, Deputy Chairman.

DEPUTY CHAIRMAN (in Cantonese): Does any other Member wish to speak?

MR CHAN CHI-CHUEN (in Cantonese): Deputy Chairman, I also agree that the passage of the amendments does not mean the Government has failed. The Government has still failed even if the amendments are negatived. Moreover, we are not exploiting this matter to attack the Government because we attack the 16998 LEGISLATIVE COUNCIL ─ 15 July 2014

Government almost on a daily basis. We need not use the amendments as a pretext to do so. On the contrary, just now some Members, who are die-hard "LEUNG fans" in the pro-establishment camp, said that the Government has already conceded in this matter. For ordinary members of the public who have been watching live telecast of the Council meeting, I do not think they have noticed any concession on the Government's part. Of course, those Members may consider that the Government has conceded for it has withdrawn an absolute order, that is, the brilliant, noble and rightful order that demand absolute compliance. By withdrawing the absolute order, Members can vote with their own free will. This is indeed a great concession.

Of course, having gone this far, I do not want to escalate the matter to the level of political struggles because I am genuinely worried that Members might act out of spite and vote against the amendments because of Mr LEUNG Kwok-hung's or our support. That would be really a case of opposing for the sake of opposing. I hope Members will, in casting their votes, consider the plight of the grassroots or consider from the perspective of the affected people in case the amendments are negatived. I note that no Member of the Hong Kong Federation of Trade Unions is present in the Chamber this morning or has spoken. I hope they can vote from the perspective of this particular group of grass-roots home owners. They need not concern themselves over my political struggles nor commend me. They should just vote according to their own principles.

MR TAM YIU-CHUNG (in Cantonese): Deputy Chairman, unlike what Mr LEE Cheuk-yan has just said, I do not think this matter has arisen because the Government wants to target buyers under the Tenants Purchase Scheme (TPS) intentionally. Why would the Government want to target them specifically? Nonetheless, the problem originates from the bill passed by the Council to effect the Buyer's Stamp Duty (BSD). The problem has arisen due to many reasons, for example, when lawyers are preparing the sale and purchase agreement under the TPS, they have not reminded their clients accordingly. Moreover, in my view, the Housing Authority should also be held responsible. The Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) is only aware of the problem when some victims sought our assistance after the passage of the Bill to effect the BSD. What could be done? The Government soon introduces another Bill to effect the doubled ad valorem stamp duty, what can be done then?

LEGISLATIVE COUNCIL ─ 15 July 2014 16999

Even with the passage of these amendments, only a small part of the problem can be resolved. As mentioned by the Secretary at the outset, the amendments could only resolve the problem faced by several dozen people, and only several hundred thousand dollars are involved. Nonetheless, the DAB has also discussed the matter repeatedly in order to find ways to help the affected owners under the TPS as far as possible. Notwithstanding our repeated discussions and numerous meetings with the Government, no better solution seems to be forthcoming. If the matter is taken to court for a decision, costs would be involved, and it is uncertain what will be the Court's judgment. If the Court's decision can also deal with the issue of BSD in one go eventually, I think it would help resolve the problem.

(THE CHAIRMAN resumed the Chair)

Under the circumstances, as mentioned by Ms Starry LEE in her speech yesterday, we hold that of the various amendments, we can consider giving support to Mr WU Chi-wai's amendments. Separately, Mr CHAN Han-pan has also outlined in his speech the problems we encountered when dealing with these cases. Of course, we understand the Government's overall consideration for the legislation, as well as its reasons for refusing to move any amendments. But we also want to help the victims as far as possible. Hence, we will support the amendments. Nonetheless, I think Members need not raise unnecessary criticisms in relation to this matter. I think any attack, either against the Secretary or other Honourable colleagues, is uncalled for, not to mention that many criticisms are made against the Hong Kong Federation of Trade Unions.

I think all of us want to help the victims. It is just a question of finding a method that is the most reasonable, practical and effective, without having any side effect, and different political parties and groupings may have different considerations. Given our serious time constraint today as this Council meeting is scheduled to end at 10 pm, there is only six hours left before 10 pm, and a large number of amendments still await our discussion. I think Members need not drag on this matter further. In particular, I greatly oppose the moving of motions to adjourn further proceedings of the committee because it would truly impede the implementation of the entire legislation. In that case, substantial impact beyond our imagination will be created for society. I think no Member wants to see the spiralling of property prices. Hence, we support the amendments.

17000 LEGISLATIVE COUNCIL ─ 15 July 2014

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, do you wish to speak again?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): No. As this joint debate has been going on for quite some time, I hope the Council can put the question to vote as soon as possible. As I have just said, the Government will respect the views of the Legislative Council regardless of the voting result.

MR WU CHI-WAI (in Cantonese): Chairman, I will be brief. I am grateful to all Honourable colleagues who have spoken in the Council on the amendments. Although some colleagues may hold a different view, the general direction is that we all want to help relieve the financial burden of the grassroots who managed to acquire home ownership amidst such difficulties. If, with luck, my amendments can be passed, they will only tackle the problem relating to the ad valorem stamp duty under the Stamp Duty Ordinance, while the Buyer's Stamp Duty, chargeable at an even higher rate, is still left unaddressed. I hope the Secretary will, as pledged, instruct the Commissioner of Inland Revenue under his purview to handle the relevant cases with maximum leniency. When we enquired with the Inland Revenue Department (IRD) as we first received these cases, its reply was that the problem could not be dealt with on a case-by-case basis. When we asked the IRD what would be the maximum period allowed for payment by instalments, the reply was one or two years at most. Such answers are not helpful at all. I hope the Secretary will heed the views of Members and give these instructions, so that the Commissioner can exercise his discretion to effectively relieve the financial hardships of the relevant home owners.

Thank you, Chairman. Thank you, Members, for your support.

LEGISLATIVE COUNCIL ─ 15 July 2014 17001

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the first and second amendment moved by Mr WU Chi-wai as set out in Appendix IA to the Script be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Tony TSE rose to claim a division.

CHAIRMAN (in Cantonese): Mr Tony TSE has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Functional Constituencies:

Mr Albert HO, Mr James TO, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr Vincent FANG, Mr Andrew LEUNG, Mr WONG Ting-kwong, Dr LAM Tai-fai, Mr CHEUNG Kwok-che, Mr Steven HO, Mr Frankie YICK, Mr Charles Peter MOK, Mr Dennis KWOK, Mr IP Kin-yuen, Mr POON Siu-ping, Ir Dr LO Wai-kwok and Mr CHUNG Kwok-pan voted for the amendments.

Miss CHAN Yuen-han, Mr KWOK Wai-keung and Mr TANG Ka-piu voted against the amendments.

17002 LEGISLATIVE COUNCIL ─ 15 July 2014

Mr Jeffrey LAM, Ms Starry LEE, Mr CHAN Kin-por, Mr YIU Si-wing, Mr MA Fung-kwok and Mr Tony TSE abstained.

Geographical Constituencies:

Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Ms Emily LAU, Mr TAM Yiu-chung, Mr Ronny TONG, Ms Cyd HO, Mr CHAN Hak-kan, Dr Priscilla LEUNG, Mr Paul TSE, Mr Alan LEONG, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr Michael TIEN, Mr James TIEN, Mr WU Chi-wai, Mr Gary FAN, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Mr LEUNG Che-cheung, Dr Fernando CHEUNG, Mr SIN Chung-kai, Dr Helena WONG, Dr Elizabeth QUAT and Mr Christopher CHUNG voted for the amendments.

Mr WONG Kwok-hing, Mr WONG Kwok-kin and Miss Alice MAK voted against the amendments.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 27 were present, 18 were in favour of the amendments, three against them and six abstained; while among the Members returned by geographical constituencies through direct elections, 30 were present, 26 were in favour of the amendments and three against them. Since the question was agreed by a majority of each of the two groups of Members present, he therefore declared that the amendments were passed.

CHAIRMAN (in Cantonese): As Mr WU Chi-wai's amendments have been passed by the committee of the whole Council, the Secretary shall not move his eighth amendment.

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, regarding the amendments passed by the Council, I have LEGISLATIVE COUNCIL ─ 15 July 2014 17003 already stated the Government's stand. In this matter, the Legislative Council considers it appropriate to deal with the relevant cases by legislation, and the Government respects its decision. Hence, we will accept and respect the Legislative Council's decision.

Chairman, as Mr WU Chi-wai's … Perhaps Members did not hear my speech clearly just now. Let me repeat. As the amendments are intended to deal with specific cases, no impact will be created on our overall policy. Hence, the Government accepts and respects the Legislative Council's decision in this regard.

Chairman, as Mr WU Chi-wai's amendments have been passed, I seek your approval to grant leave to dispense with the required notice so that I can move consequential technical amendments to the proposed section 29AI under clause 10 and the proposed section 29BA under clause 13 to add the references to the new sections 29AR and 29BJ.

CHAIRMAN (in Cantonese): I now suspend the meeting for five minutes to handle the request made by the Secretary for Financial Services and the Treasury.

11.52 am

Meeting suspended.

11.57 am

Committee then resumed.

CHAIRMAN (in Cantonese): As the first and second amendment moved by Mr WU Chi-wai have been passed, I have waived the required notice for the Secretary to move consequential technical amendments to clauses 10 and 13 as amended. The Secretary's amendments have already been circulated to Members.

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SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, I move the consequential technical amendments to the proposed section 29AI under clause 10 and the proposed section 29BA under clause 13 to add the references to the new sections 29AR and 29BJ.

Proposed amendments

Clause 10 (See Annex II)

Clause 13 (See Annex II)

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the amendments moved by the Secretary for Financial Services and the Treasury be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

Mr CHAN Chi-chuen rose to claim a division.

CHAIRMAN (in Cantonese): Mr CHAN Chi-chuen has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

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Mr Albert HO, Mr James TO, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Ms Emily LAU, Mr TAM Yiu-chung, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr Vincent FANG, Mr WONG Kwok-hing, Mr Jeffrey LAM, Mr Andrew LEUNG, Mr WONG Ting-kwong, Ms Cyd HO, Ms Starry LEE, Mr CHAN Hak-kan, Mr CHAN Kin-por, Dr Priscilla LEUNG, Mr CHEUNG Kwok-che, Mr WONG Kwok-kin, Mr Alan LEONG, Mr Albert CHAN, Mr James TIEN, Mr Steven HO, Mr Frankie YICK, Mr WU Chi-wai, Mr YIU Si-wing, Mr Gary FAN, Mr MA Fung-kwok, Mr Charles Peter MOK, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Miss CHAN Yuen-han, Mr LEUNG Che-cheung, Miss Alice MAK, Mr KWOK Wai-keung, Mr Dennis KWOK, Mr SIN Chung-kai, Dr Helena WONG, Mr IP Kin-yuen, Dr Elizabeth QUAT, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu, Ir Dr LO Wai-kwok and Mr Tony TSE voted for the amendments.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that there were 49 Members present and 48 were in favour of the amendments. Since the question was agreed by a majority of the Members present, he therefore declared that the amendments were passed.

CLERK (in Cantonese): Clauses 10 and 13 as amended.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That clauses 10 and 13 as amended stand part of the Bill. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

Mr CHAN Chi-chuen rose to claim a division.

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CHAIRMAN (in Cantonese): Mr CHAN Chi-chuen has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Mr Albert HO, Mr James TO, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Mr TAM Yiu-chung, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr Vincent FANG, Mr WONG Kwok-hing, Mr Jeffrey LAM, Mr Andrew LEUNG, Mr WONG Ting-kwong, Ms Cyd HO, Ms Starry LEE, Mr CHAN Hak-kan, Mr CHAN Kin-por, Dr Priscilla LEUNG, Mr CHEUNG Kwok-che, Mr WONG Kwok-kin, Mr Alan LEONG, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr James TIEN, Mr NG Leung-sing, Mr Steven HO, Mr Frankie YICK, Mr WU Chi-wai, Mr YIU Si-wing, Mr Gary FAN, Mr MA Fung-kwok, Mr Charles Peter MOK, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Miss CHAN Yuen-han, Mr LEUNG Che-cheung, Miss Alice MAK, Mr KWOK Wai-keung, Mr Dennis KWOK, Mr SIN Chung-kai, Dr Helena WONG, Mr IP Kin-yuen, Dr Elizabeth QUAT, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu, Ir Dr LO Wai-kwok and Mr Tony TSE voted for the motion.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that there were 50 Members present and 49 were in favour of the motion. Since the question was agreed by a majority of the Members present, he therefore declared that the motion was passed.

CHAIRMAN (in Cantonese): Mr Tommy CHEUNG has given notice to move his first amendment to amend clause 18 as set out in Appendix IA to the Script.

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The Secretary for Financial Services and the Treasury has also given notice to move his ninth amendment to amend clause 18 as set out in Appendix IA to the Script.

Both the amendments of Mr Tommy CHEUNG and the Secretary are related to the ad valorem stamp duty (AVD) refund mechanism for owners having acquired a new residential property before disposing of the original property.

CHAIRMAN (in Cantonese): The Committee shall first vote on the first amendment by Mr Tommy CHEUNG. In the event of the passage of Mr Tommy CHEUNG's amendment, the Secretary shall not move his ninth amendment.

CHAIRMAN (in Cantonese): Members can now have a joint debate on the relevant parts of the original clauses and the abovementioned amendments proposed to these clauses. I will first call upon Mr Tommy CHEUNG to speak and move his amendment.

MR TOMMY CHEUNG (in Cantonese): Chairman, I move my first amendment as set out in Appendix IA to the Script to further amend clause 18.

On behalf of the Liberal Party, I propose the amendment so that a Hong Kong Permanent Resident purchaser may benefit from the refund mechanism specifically for replacement home buyers, that is, if he enters into an agreement for sale to sell or a conveyance on sale to transfer his original and only other residential property in Hong Kong within 12 months, instead of the proposed six-month time frame in the Bill, from the date of acquiring a new residential property, he can get a refund of the ad valorem stamp duty of an amount equal to the difference between payments according to the old and new rates on the newly acquired property.

Members may notice that my amendment is largely modelled on the Government's amendments to the relevant provisions, with the only difference being that the time frame for disposing the original property is 12 months instead of six months.

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As I mentioned during the resumption of Second Reading debate on the Bill, after all, it is better to have the Government's amendment concerning the mechanism for the acquisition of replacement homes than nothing at all. To avoid any impact on the Government's amendment in case my amendment is passed, I have mirrored the Government's amendment in my amendment. Hence, Members should not have any worry in this regard. I mention this point because Mr Abraham SHEK asked me earlier which amendment would be put to vote first. I can tell Mr Abraham SHEK that even if he supports my amendment, the Government's modified proposal to relax certain requirements under the relevant provisions will still be retained.

I hope Members can understand that the Government's amendment is primarily targeted at buyers of new flats. In other words, the greatest benefit will go to developers in the course of marketing new residential projects. They can even cancel the promotional offers of providing a stamp duty refund to buyers because according to the Government's modified proposal, the "six-month" time frame for owners who have acquired a new residential property to dispose of their original one would be adjusted to commence from the conveyance on sale instead of the agreement for sale and purchase of the newly acquired property, effectively giving the owners an extra period of time ranging from one to three years from the date of the provisional agreement for sale and purchase, instead of just six months in the original proposal, and substantially reducing their risk in changing properties.

Having said that, the Government's modified proposal is not completely useless for buyers who change to second-hand properties, but the use is minimal. Calculated from the date of the provisional agreement for sale and purchase, owners will only have less than two extra months for changing properties (that is, a total of eight months at most).

I must emphasize that the double stamp duty (DSD) is introduced to curb speculators rather than users. Insofar as the refund mechanism is concerned, it only applies for owners having acquired a new residential property before disposing of the original property, with the additional requirement that the original property must be their only residential property in Hong Kong (that is, they are bona fide users). Hence, for this group of buyers, the measure must be as lenient ― Chairman, I repeat ― as lenient as possible, rather than excessively stringent.

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Of course, it is feasible for an owner having acquired a new residential property before disposing of the original property to complete the entire procedure for changing properties within six to eight months, though not without a certain degree of difficulty. It is purely a matter of luck for a prospective buyer to decide on the owner's original property, not to mention that the process may drag on for several weeks or even months before the prospective buyer actually pays the deposit. In case of down payment forfeiture, the owner must look for another buyer again. Hence, the entire procedure can easily take six to eight months to complete.

The Administration pointed out that according to the statistics of the Inland Revenue Department, roughly half of the purchasers who sold their other residential properties after acquiring new ones between 2011 and 2012 had their disposal transactions done within six months from the acquisition. Hence, it considered that the proposed six-month time frame was practical and appropriate. However, it is completely unreasonable to adopt such as the basis because the Administration has neither provided Members with the data concerning disposal transactions done within eight or 12 months, nor excluded the possibility of having disposal transactions that cannot be completed within six months.

The crux is that the Government's requirement has created unnecessary risks for replacement home buyers. The restriction arising from the grace period will definitely create pressures for owners who have acquired a new residential property before disposing of the original property, such that their bargaining power will be greatly undermined. If a prospective buyer knows the time constraint faced by replacement home owner to dispose of his original property, the prospective buyer may take this as an advantage for haggling. It is clear that the relevant measure is in fact unfair to those owners who have acquired a new residential property before disposing of the original property.

All in all, the shorter the time available for disposing of the original property, the lower the bargaining power. Hence, I cannot see any reason why the Government should refuse to concede and extend the grace period. Moreover, replacement home buyers under time constraint to dispose of their original properties can hardly make any profit out of these transactions. Hence, it is unfounded to say that any relaxation of the said requirement will undermine the effectiveness of the relevant measure. I can hardly understand why the Administration adopts such a firm stand and refuse to accept the Liberal Party's suggestion.

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Recently, some people hold that since the Government agrees to extend the grace period for buyers of uncompleted flats, many new residential projects on sale are attracting an increasing number of visitors, resulting in a rise in the number of sales as well as a rebound in property prices. In fact, there is no cause for alarm because such a reaction is just normal. This exactly shows that there are many bona fide users in Hong Kong with the need for changing properties. It is only because of the Government's unreasonable measures that their need has been suppressed. Such demand has now been released slightly.

On the contrary, I hold that this is cause for reflection on the Administration's part. Given such a clear message from the market, there is indeed a huge demand from users. Is it even more necessary for the Government to relax the market for owners who need to change properties? Suppressing demand over time is tantamount to muffling one's ears while stealing the bell. Eventually, the pressure must be released, or else it would become even more difficult to control. As a matter of fact, the need to change properties is just natural. It is reasonable for Administration to facilitate the same.

Besides, since the implementation of this "curb" measure, the second-hand market has become almost paralysed, so to speak. As a result, the bargaining power of owners of second-hand properties has been undermined. Their plans to sell their properties for the sake of improving the standard of living have also been affected.

Hence, I hope Honourable colleagues can support my amendment, that is, to extend the time frame for changing properties to one year on the basis of the Administration's amendments. When owners having acquired a new residential property before disposing of the original property are selling their original property which is their only property, they can have reasonable bargaining power, instead of having their interests sacrificed by this Bill.

Separately, I of course welcome the Government's earlier move to accept our advice such that the refund arrangement which originally only applies for owners having acquired a new residential property before disposing of their original and only other residential property in Hong Kong, is now extended correspondingly for owners having acquired a residential property and a car parking space before disposing of their original ones. Nonetheless, the Administration's requirement that the residential property and car parking space must be disposed of in a single instrument might create certain inconvenience. But it is still better to have such an arrangement than nothing.

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In fact, the Government's original requirement to treat car parking space as non-residential property and hence, must be subject to payment of DSD is unreasonable. For many Hong Kong people, car parking space is a daily necessity and rarely sold for speculation gains. Hence, the Government's amendment only serves to correct its own mistake.

Hence, my amendment has incorporated all the abovementioned changes. Simply put, the only difference between my amendment and the Government's amendment is that the time frame for changing properties has been revised from six months to 12 months. Therefore, my amendment is actually better than the Government's amendment. I implore Honourable colleagues to support it.

Chairman, I so submit.

Proposed amendment

Clause 18 (See Annex II)

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, the Government proposes the amendment to clause 18 as set out in the paper circularized to Members. The relevant amendment seeks to adjust the commencement date of the six-month time frame for owners who have acquired a new residential property to dispose of their original one under the refund mechanism.

Mr Tommy CHEUNG's amendment is based on the Government's amendment with the only difference being that the six-month time frame be extended to 12-month.

Before responding to Mr CHEUNG's amendment, I would like to briefly explain the refund mechanism under the Bill. According to the Bill's proposal, if an Hong Kong Permanent Resident (HKPR) who acquires a new residential property has entered into an agreement for sale and purchase to dispose of his original and only other residential property in Hong Kong within six months from the date of acquiring a new residential property, he can benefit from the refund mechanism purposely drawn up to cater for the replacement needs of HKPRs.

In the course of the Bills Committee's scrutiny, we heard many views that the time frame for changing properties in the original proposal which commences 17012 LEGISLATIVE COUNCIL ─ 15 July 2014 from the agreement for sale and purchase of the newly acquired property cannot cater for the actual needs of replacement home buyers. Striking a balance between safeguarding the effectiveness of the measures and addressing the practical needs of replacement home buyers, we decide that the "six-month" time frame for changing properties under the current arrangement in the Bill be adjusted to commence from the conveyance on sale instead of the agreement for sale and purchase of the newly acquired property.

In the light of the above arrangement, we also propose a slight modification to the "two-year" time frame for application to the Inland Revenue Department (IRD) for stamp duty refund as specified in the Bill. While maintaining the two-year application time frame after the execution of an agreement for sale and purchase of the newly acquired property, we propose to include a new clause to allow for application within two months from the conveyance on sale of the original residential property, whichever is the later. This measure enables buyers of changing properties, including those who acquire uncompleted flats, to apply for refund after completion of transactions to cater for actual circumstances.

We hold that the above formulation as effected by the amendments can address the replacement needs of both owners who acquire existing stocks and uncompleted flats. The refund criterion is applicable across the board, clear and fair. It is easy for public understanding and facilitates effective administration by the IRD.

In addition, given that the refund arrangement for owners having acquired a new residential property before disposing of the original property as provided in the present Bill is originated from the exemption from the doubled ad valorem stamp duty (AVD) for HKPRs in acquiring residential properties, and we have decided to uphold the spirit of providing exemption for residential properties, we should also cater to the home ownership needs of those who acquire a residential property and a car parking space by a single instrument. Correspondingly, the refund arrangement for owners having acquired a new residential property before disposing of their original one is extended to also cover the car parking space. In other words, so long as the replacement home buyers can meet the requirements stipulated under the Government's current amendment, dispose of their original properties (which may include a residential property and a car parking space) within the specified period and apply to the IRD for a refund, the LEGISLATIVE COUNCIL ─ 15 July 2014 17013

IRD will provide a refund of the AVD of an amount equal to the difference between payments according to the old and new rates on the newly acquired residential property and car parking space (if applicable).

Members of the Bills Committee and the public at large welcome the above two adjustment proposals which are technical in nature. We are also glad to note that Mr Abraham SHEK and Mr Tony TSE have subsequently withdrawn their proposed amendments on the subject of changing properties.

To illustrate our rationale in proposing the "six-month" time frame for changing properties, I would like to provide Members with some statistics. According to the IRD's data analysis, in 2011 and 2012, roughly half of the Hong Kong Identity Card purchasers who sold their other residential properties after acquiring new ones have their disposal transactions done within six months from the acquisition. In fact a residential property owner having acquired another residential property, in general, will not hold the original one for a long period of time for cash flow considerations. We understand that some banks in the market are providing bridging loans for customers replacing their properties with their newly-acquired residential properties and the repayment period of such bridging loans usually spans six months. It is clear that the "six-month" time frame is formulated on the basis of objective facts.

We do not agree with Mr Tommy CHEUNG's amendment. It is necessary for the Government to stipulate a specified time frame for changing properties so as to prevent both actual or self-claimed replacement home buyers from holding more than one residential property for a long period of time, which is inconsistent with the Government's policy objective of introducing the demand-side management measures. Mr CHEUNG's amendment is undoubtedly too lenient in respect of the time allowed for the disposal of the original properties. Considering the sensitive state of the property market at present, if the "six-month" time frame for changing properties is extended to 12-month, it will only give a wrong message to the market that the Government is relaxing its measures further, thus heating up the market and undermining the effectiveness of the measures.

On account of the above reasons, I implore Members to support the Government's amendment and oppose the amendment moved by Mr CHEUNG.

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MR GARY FAN (in Cantonese): Earlier when I spoke during the Second Reading debate, I already advised that the Government must consider carefully the consequences of relaxing the "curb" measures in view of the pent-up demand in the market. I would like to express my opinions on the amendment to clause 18, (that is, amendment to section 29DF of the Ordinance) about the mechanism of partial refund of ad valorem stamp duty for owners having acquired a new residential property before disposing of the original property.

Chairman, early this year, a consultancy on public policies in the United States, Demographia, published the International Housing Affordability Survey for the third quarter of 2013. It is found that among the 360 cities in the world, Hong Kong tops the list of the least affordable property prices. The ratio of property prices to the annual median household incomes has reached record high in the 10 years of the Demographia Survey. What does this prove? It proves that property prices in Hong Kong have reached a level unaffordable to the general public. The above figures prove that despite the demand-side management measures introduced by the Government, the goal of suppressing property prices has failed. The persistently high property prices are certainly attributed to many other reasons. In the view of some Members, the demand-side management measures have resulted in sluggish turnover in the property market and hence they propose to relax the "curb" measures to some extent, so as to encourage property owners to acquire another property.

Such view is exactly reflected in the amendment to clause 18. The Government proposes to amend the six-month time frame for purchasers having acquired a new residential property to dispose of their original property for the purpose of refunding the doubled ad valorem stamp duty. This mechanism intends to cater for the needs of people who may own more than one residential property during the process of changing their properties. They are therefore granted a six-month time frame to divest their original property.

Under the current amendment, the Government proposes to relax the calculation of the six-month time frame for disposing the original property by extending the commencement of the time frame from the execution of the preliminary agreement for sale and purchase to the completion of the transaction. Undoubtedly, such amendment will directly bring the objective effect of extending the time frame for disposing the original property for those who change properties by acquiring uncompleted flats. It is because for uncompleted flats in general, the time between signing the preliminary agreement for sale and purchase and the actual conveyance on sale far exceeds six months, sometimes as LEGISLATIVE COUNCIL ─ 15 July 2014 17015 long as two to three years. As such, the Government's amendment will attract those changing properties to buy long-term uncompleted flats.

In view of an amendment that is favourable to the sale of uncompleted flats, property developers will definitely put on sale more long-term uncompleted flats, thus pushing up the supply of first-hand properties. For those who support this amendment proposed by the Government, their argument is that prices of second-hand properties will go down as a result of increased supply. But such argument has neglected the fact that the increased supply of uncompleted flats will increase transaction volume in the first-hand property market and in turn change the atmosphere of the entire property market.

Chairman, the purpose for developers to put uncompleted flats on sale is to create an investment tool. When members of the public make a purchase in an uncompleted property development project, it is tantamount to investing in commodity futures of the developers. This is a kind of investment instead of a pure property transaction. Such investment in commodity futures is most beneficial to property developers because this will increase their cash flow. In considering revising the "curb" measures, the Government should not benefit property developers in this way and encourage investment activities, negating that the intent of the "curb" measures is to combat property investment. The Government's amendment is inconsistent to its policy.

Chairman, the Neo Democrats therefore considers the amendment of Mr Tommy CHEUNG unacceptable because the extension of the six-month time frame for divesting the original property to 12 months is tantamount to conveying a clear message to the market that the Government is beginning to relax its measures and encourage investors to purchase properties. Chairman, casually changing the attitude in implementing demand-side management measures from strictly non-compromising to making concessions will deal a severe blow to the property market of Hong Kong. Alan GREENSPAN, former Chairman of the Federal Reserve Board of the United States, often cites the market jargon of "irrational exuberance", which means investors' incentive to enter the market may change with market sentiments and conditions. Once investors become exuberantly confident, property prices may surge sharply within a short period, thus making it difficult for the Government to suppress the prices by any measures again within a short time. Once investors realize that the Government intends to relax the "curb" measures, the effect of such measures will surely be undermined in future.

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Chairman, demand-side management measures should focus on reducing the demand. It is unreasonable for the Government to renege on its words because of the increase in demand and allow the public to freely enter the market again. This will only arouse queries to the continuity of the implementation of government measures and whether there are some problems with the Government. This will in turn undermine the authority and legitimacy of the demand-side management measures, rendering them ineffective in suppressing the property market in future. Therefore, the Neo Democrats does not agree with Mr Tommy CHEUNG's amendment.

I so submit.

MR ABRAHAM SHEK: Chairman, this debate is about the refund mechanism for Hong Kong Permanent Resident (HKPR) purchasers/transferees having acquired a new residential property before disposing of their original property. The refund mechanism is aimed at catering for the replacement needs of the HKPRs having regard to the fact that one may own more than one residential property during the transitional period in the process of acquiring a new property for replacement of the original one.

According to the original proposal of the Blue Bill, the proposed section 29DF stipulates that a HKPR, having entered into an agreement for sale and purchase to dispose of his/her original and only other residential property in Hong Kong within six months from the date of acquiring a new residential property, can apply to the Inland Revenue Department (IRD), within two years from the date of the instrument in acquiring the new residential property, for the refund of ad valorem stamp duty (AVD) of an amount equal to the difference between payments according to the old and new rates on the newly acquired property.

I welcome the Administration's positive response to addressing Members' concerns about the six-month time frame originally proposed in the Bill subject to the signing of the agreement for sale and purchase of the newly acquired property, which is too short to meet the actual needs of those changing properties by acquiring uncompleted flats before disposing of their original one, rendering them unable to benefit from the refund mechanism.

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According to the Government's revised proposal, the "six-month" time frame under the current arrangement in the Bill would be adjusted to commence from the date of conveyance on sale instead of the agreement for sale and purchase of the newly acquired property. This is a sensible move given that the presale period of individual projects under the Consent Scheme may be up to 30 months earlier than the anticipated completion date, and buyers of long-term uncompleted flats may not be able to file their AVD refund applications with the IRD within two years from the date of the instrument for acquiring the new property. On the other hand, even if an owner holds more than one residential property for a long time during the replacement period, the new property, being an uncompleted flat, will not provide immediate accommodation.

In order to obtain a refund, these purchasers may have to sell their existing flat within six months and rent another place while waiting for the completion of the newly acquired pre-sale flat. If the counting method of the commencement date of the "six-month" time frame stated in the Blue Bill were implemented, it would discourage these people from replacing old properties with new ones; this would thus go against the policy objective of increasing market supply.

Chairman, although the Administration's revised proposal is music to ears of many, Mr Tommy CHEUNG's proposed Committee stage amendment (CSA) sounds even sweeter. Based on the Administration's revised proposal to commence the counting of the "six-month" time frame from the date of conveyance on sale, Mr Tommy CHEUNG's proposed CSA would better cater to the actual needs of buyers who have to replace properties by extending the time frame to "12 months".

Understandably, the Government's revised CSA would give more leeway to buyers of long-term uncompleted flats to file their AVD refund applications to the IRD in time as well as to owners who hold more than one residential property for a long time during the process of replacement. Nevertheless, the maintenance of the "six-month" time frame in the Government's CSA may not be user-friendly enough. As Mr Tommy CHEUNG has explained at the Second Reading debate on this Bill, it usually takes at least seven to nine months for flat owners to dispose of their small and medium-sized flats. The "six-month" time frame thus cannot accommodate the actual needs of flat owners for replacing their original properties.

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For this reason, Mr Tommy CHEUNG's CSA is a better and more user-friendly alternative: his CSA, when adopted, would better accommodate the needs of the HKPRs who are replacing their residential properties, taking into account not only difficulties usually faced by buyers of first-hand uncompleted flats and property owners involved in the process of replacement for first-hand uncompleted flats, but also the actual scenario that many flat owners need to replace an original property with another second-hand flat ― this would also help speed up the supply of second-hand flats to the market and is consistent with the policy objective. I therefore call upon Honourable colleagues to support Mr Tommy CHEUNG's CSA, although I also consider the Government's revised proposal acceptable.

Chairman, some people query whether the Government's CSA, which provides up to two months extra for those seeking to replace their original property with an existing stock and up to three years extra for an uncompleted flat, will offer greater flexibility to purchasers of uncompleted flats, thereby encouraging the acquisition of an uncompleted flat as a replacement property, which will in turn benefit developers in selling their flats. That is the argument by Mr Gary FAN. This view is based on the prejudiced presumption that the change is aimed at benefiting only developers and maintaining the so-called "developers hegemony". But this is a meaningless conspiracy theory. The question is: why can we not seek a win-win solution in this matter? Some people hold the view that developers must not benefit from government policy as a matter of political correctness. According to the IRD's statistics, over 80% of residential property transactions in 2012 and 2013, and even earlier, were in the secondary market involving existing stocks and not the first-hand market. It is clear that change based on the Government's CSA would encourage more HKPRs to acquire first-hand uncompleted flats to replace their original one. The point is: in the prevailing lackluster residential market, unleashing the potential of uncompleted first-hand flats is in line with the policy objectives of boosting flat supply and helping more HKPRs to purchase a home. Developers will also be encouraged to build more first-hand flats and put them up for sale faster, narrowing, as I said earlier, the ratio of 80:20 in residential property transactions between the secondary market and the primary market, which in turn will create a virtuous circle on the supply front. It is actually a positive sum game where not only developers and local home buyers, but also the long-term stability of the residential property market will benefit from the change.

Thank you.

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MR JAMES TIEN (in Cantonese): Chairman, we can see that Mr Tommy CHEUNG's amendment bears no actual relationship with the industries represented by the few Members returned by functional constituencies. Therefore, there is in fact no serious conflict of interests.

The District Councils and people in the local community have reflected to us the views of the middle class with regard to the changing of properties. In particular, I think it is very risky for the middle class to acquire a new property before disposing of the original one. They may not have the capital to acquire a new property, and the bank may not support them as well. As a result, after acquiring a new property, most of them will try to dispose of their existing property as soon as possible. As they are just small property owners, they cannot afford to own two residential flats.

On the other hand, if we ask the middle class to sell their self-occupation property first and then acquire a new one with the money received, great difficulties will also arise. What would happen if they cannot find a desirable flat after selling their existing flat? The middle class has reflected to us that they need a bigger flat. Of course some of them share the views of Mr Gary FAN and are hostile towards property developers. But they fail to note that property developers are actually "money couriers". They spend a few billion dollars to purchase land from the Government, then hire a lot of workers for housing development, and finally make a profit after selling the flats. After paying taxes, they once again use a few billion dollars to purchase land from the Government. Only then can the Government have the revenue to implement measures in other policy areas, such as healthcare and education. Therefore, it is unfair to target against property developers.

As mentioned by Mr Abraham SHEK, according to data, of the cases involving the acquisition of replacement properties in previous years, the average number of new flats acquired from property developers was less than 10 000 per year, while 60 000 to 70 000 flats were purchased in the second-hand market. Let us assume that the middle-class people acquire a replacement property in the second-hand market. If they sell their original flat at $5 million and purchase a bigger flat at $7 million, this has nothing to do with property developers. For the middle class, most of them consider that the six-month time frame is better than none; and if the time frame can be extended to one year, they will have more time. We can well understand their desire to buy a new flat at a lower price and sell the flat they currently own at a higher price. Does it mean that they are engaging in speculative activities? On this point, everyone has a different view.

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For the middle class, they may first buy a new flat which is offered for sale at an attractive price, perhaps because the existing owner migrates to other places or the developer offers sales promotion. Later when they dispose of their original property, they certainly want to sell it at a higher price. They will not sell their flat at a lower price simply because they have acquired a new flat at a low price. I believe everyone has the same mentality.

Many of our electorates, especially those in the "middle class constituencies", indicate that it will be more reasonable if the Government allows a time frame of more than six months for them to dispose of their original property after acquiring a new property. As a matter of fact, they cannot afford to own the original property for over 12 months. If they fail to sell it at a good price within 12 months, they may be willing to sell it at a slightly lower price; otherwise, owning two flats means repaying the mortgage for two flats at the same time. Besides, the flat put on sale cannot be rented out, which means they have to pay bank interests without getting any income. Therefore, the chance of holding a flat for over one year for speculation purpose should be minimal. On the other hand, during the six-month period, they not only have to engage a lawyer to handle the formality, but may also have to face the situation where the buyer forfeits the down payments. In this case, they need to look for a new buyer. This situation is quite common. Therefore, this amendment reflects the views of the middle class whom we care, and is absolutely unrelated to public rental housing tenants. The grassroots probably have not noticed or paid special attention to this issue.

On the contrary, there is another saying that the extension of the time frame to 12 months will encourage speculation. Regarding the property prices in the recent one or two years, I believe many members of the public may observe that selling a property after holding it for a longer period of time may not necessarily guarantee a price rise. In particular, over the recent year, the price of a property sold one year ago is higher than that sold nine months ago; and the price of a property sold nine months ago is higher than that sold six months ago. Therefore, extending the time frame to 12 months does not mean that property prices will surely go up even if people want to speculate. If this is really the case, everyone will invest in real estate. The real estate market is the same as the stock market where prices can go up and down. No one can guarantee that after buying a new flat, selling the original flat nearer to the end of the 12-month time frame will definitely get a higher price, or, as stated by the Government, the price will surely reach its highest point after six months. If someone would like to buy a particular flat but the owner refuses to sell the flat to him, what will LEGISLATIVE COUNCIL ─ 15 July 2014 17021 happen once the United States increases the interest rates? Once hot money has left Hong Kong and our interest rate is increased, or the property developers suddenly put on sale a lot of new flats after one year, prices of second-hand properties will also be affected. Therefore, we should not say that extending the time frame to 12 months will certainly encourage speculation and allow property owners to sell their flats at a higher price.

Based on the above reasons, the Liberal Party opines that although not many people will actually benefit from the extension of the time frame from six months to 12 months, public views (especially those from the middle class) we receive indicate that the extension allows them to acquire a new property before disposing of the original one and is therefore more desirable.

Thank you, Chairman.

MR DENNIS KWOK (in Cantonese): Chairman, on behalf of the Civic Party, I speak in support of Mr Tommy CHEUNG's amendment.

Chairman, the Bill under scrutiny is the Stamp Duty (Amendment) Bill 2013 (the Bill) through which the Government hopes to put in place some interim demand-side management measures to combat speculation in the property market and in turn help Hong Kong people buy their own homes. It can be said that this policy initiative is relatively simple and logical. Noting that the policy intent is to help Hong Kong people buy residential properties, the Civic Party is in support of the policy.

However, when Hong Kong people buy residential properties, one of the most common practice is that they will sell their owner-occupied property and buy a bigger and newer property for replacement. In fact, people in their thirties who have formed their own family or who are newlyweds with a child will often have to change their property. With an extra family member or when there are changes in the family composition, acquisition of a replacement property is warranted.

Nowadays many newlyweds in their thirties have the need to change their property. Very often, they now own a property but after the birth of their children, they may want to live with their parents. Hence they have to sell their present property and buy a new one. They are exactly the group of people whom the Government intends to help through the current measure and therefore 17022 LEGISLATIVE COUNCIL ─ 15 July 2014 it is reasonable to grant them exemption. They are also the group of people whom we want to help through this policy.

Regrettably, while the Administration intends to help this group of people, it has imposed very harsh requirements at the same time, that is, a six-month time frame for disposing of the original residential property after acquiring a new one. The six-month time frame is downright too short. Figures show that less than half of the people can complete the transaction of changing properties within six months, and most people need more time to dispose of the original property. In particular, the present market is so-called a "policy market". Owners cannot be certain that they can sell their property within six months. Why is the Government so mean to impose such a requirement? I really do not have a clue.

Of course, if Mr Tommy CHEUNG's amendment is not passed, the Civic Party will have to consider whether or not to support the six-month time frame proposed by the Administration. However, I hope Honourable colleagues in this Chamber can listen carefully: we really need to help this group of people. Their situation strikes a chord in me because some young professionals, though they can afford to buy a property, may need to replace their property in order to cater for their family needs. They need our help badly. Upward mobility is essential to build a healthy family.

Regarding the reasons given by Mr Gary FAN just now for opposing the amendment, I cannot quite understand his logic. Probably, he may think that once the time frame is extended to 12 months, many people will be able to acquire replacement properties, thus stimulating the property market. However, in reality, there are in fact some people who intend to replace their properties. We have to give them assistance. But will this stimulate the property market as a result? I do not see such a trend. Moreover, in his logic, the extension may likely benefit property developers. But this should not be our major consideration.

Our main consideration should be whether the amendment of extending the time frame to 12 months can really help those people who intend to replace their owner-occupied property with a bigger one or those who simply want to replace their property. In our view, the amendment can achieve this purpose and so it should be incorporated into the Bill. As such, the Civic Party is in support of Mr Tommy CHEUNG's amendment.

Chairman, I so submit.

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MR JAMES TO (in Cantonese): Chairman, first-time property purchasers can be exempted from the double stamp duty (DSD) introduced by the Government. In other words, if a person does not own a property, he will be granted exemption when he purchases his first property because this is "from none to one". This can cater for the home ownership needs of Hong Kong Permanent Residents. The policy intent is to help people acquire their own homes, though some colleagues, especially Mr CHAN Chi-chuen, have repeatedly said that within the foreseeable future, property prices would hardly return to the level affordable to first-time buyers. The DSD alone probably cannot achieve such purpose. Even with the implementation of all the three new stamp duties, namely DSD, Buyer's Stamp Duty (BSD) and Special Stamp Duty (SSD), it is still not likely to work.

The problem arising from this is that if a person is not a first-time buyer but already owns a property and would like to replace the original property for family needs or other reasons, how can this be handled? There are different situations for people to change their properties. Of course many of them are looking for a bigger flat. Take me as an example. Now I have one child and if I can afford, I would like to replace my property with a better one so that there will be more space for my child to get around.

Not all people who intend to replace their property are looking for a bigger flat. Some of them may want to replace their property with a smaller one. Elderly persons may be among these people. For example, I have a friend who owns a three-room apartment in Taikoo Shing or somewhere in Eastern District. His children have all grown up and moved out. The children's rooms are filled with old stuff, toys, dolls, a piano, and the like. They have not moved such stuff to their new home after they get married, but still keep them in their parents' home. On the other hand, as this couple do not have an income, they would like to replace their present property with a smaller one in view of the current high property prices. The extra money thus earned can be used to support their living so that they need not depend on their children because their burdens are also very heavy. Therefore, there are cases where people look for a smaller flat in replacing their property. Sometimes people may wish to move to other districts. There are in fact different possibilities. Generally speaking, these are all normal economic activities. There are various possibilities for normal property replacement activities.

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The time frame originally proposed by the Government in the Bill for disposing of the original property after buying a new one is six months. According to the Government's justification, six months should be enough. Frankly speaking, if the Government is not unaware of the plights of the people … it is easy to purchase a property now. Of course property prices are not low and are increasing slightly. In particular, prices continue to rise recently. Let us not talk about prices at the moment. The focus of the question is that it is easy to purchase a flat or even a number of flats, but it is not easy to sell the original flat because the transaction volume in the market is low.

According to real estate agents, the property market is robust recently. Once a flat is put on sale in the market, it will be sold immediately because of a lack of supply. There is a hearsay that the price of Uptown Plaza in Tai Po has made a record high of $11,000 per sq ft. Therefore some people say that once a flat is put on sale, it will be sold immediately. However, to my understanding and based on objective data, this is not the case in reality. In the past, it took six months to complete the process for replacing a property because it was easy to sell the original flat. However, with the current problem of low transaction volume, it is more difficult to replace properties. If the original flat is not disposed of, what will happen? Flat owners have to pay DSD.

Nonetheless, we should bear in mind that the amount of DSD is a huge sum to the person concerned because he actually has one property only. During the scrutiny of the Bill by the Bills Committee, the Government expressed its worries that once the six-month time frame is extended to say 12 months or even longer, people may have the potential chance to engage in property speculation. Why is it so?

Let me cite an example. If a person purchases another flat before disposing of his original flat ― if he sells his original flat before buying another one, there will be no problem ― he owns two flats at the same time. In other words, the person originally only owns one flat but after he signs an agreement to buy another flat, he hopes that he can make a profit if property prices go up during the interim period of a few months. This can in fact be regarded as potential property speculation. Certainly, this does not mean that the person speculates on the newly acquired flat in the short term because he has to pay SSD; therefore he makes no profit even if property prices rise. In reality, property prices increase continuously. If an owner buys another flat first before disposing of his original flat, given that his original flat will appreciate, he will in LEGISLATIVE COUNCIL ─ 15 July 2014 17025 turn engage in speculation through replacing properties. But his speculation is in the original flat, not the newly acquired flat. As the original flat has been purchased for years, no SSD is payable. This is the justification of the Government. I would like to highlight this point because it is not easy to understand the actual situation by reading the Bills Committee report.

What puzzles me is that the Government is now relaxing the time frame for new flats by adjusting the commencement date to the conveyance on sale. This will in fact generate a number of problems. Firstly, as pointed out by some colleagues, this is unfair to those who buy second-hand flats for replacing their original properties. Why? It is because new flats can be put on sale in the form of uncompleted flats. Some of them are even long-term uncompleted flats. In particular, with a view to increasing supply, the Government now allows developers a presale period of up to 36 months in advance of the anticipated completion date. In other words, for those who replace their properties, it will be better to buy new flats because they will have months to sell their original flats … Chairman, you would like me to finish my speech, wouldn't you? Because you are looking at me …

As there is a longer period for the owners to sell their original flats, the situation which the Government worries will arise, that is, the owners will sell their original flats later in anticipation of rising property prices. This is exactly the concern of the Government. When a person owns two properties for a long time, potential speculation in the original property will be resulted. As such, I have no idea why the Government does not think problems will arise in this situation.

Another unfair situation that may arise is that those who buy new flats (long-term uncompleted flats) will definitely pay a higher price because they have a longer time frame for replacing their properties and can get the exemption. The present situation can already explain … With the strenuous efforts of real estate agents and developers, or the publicity by the media which stresses that it is better to buy new flats in replacing the original flats, there are signs of the property market heating up. Developers continuously put on sale new flats and put in strenuous efforts in promoting sale. Honestly, I have no idea why the Government is reluctant to make any concession. Among all the amendments, it only agrees to grant this exemption. The problem is that this is unfair to those who would like to buy second-hand flats.

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Therefore, I think Mr Tommy CHEUNG's proposal of extending the time frame to 12 months for all properties is closer to being fair. The Government often says fairness should be maintained and just now the Secretary also commented at the end of his speech that this would be fairer. Frankly speaking, it will not be fairer in reality because, as we all know, the handover period for second-hand flats is not long. I do not know who can have a very long handover period. Usually a person who wants to replace his original property will identify another flat, which is put on sale by the owner due to various reasons. Therefore, in reality, only new flats can enjoy a longer handover period while this is not possible for second-hand flats.

It can be said that the proposal is only theoretically fair, but not actually fair. If we are to say which party will benefit, it must be those developers who put housing projects on sale. It is unfair to those who buy second-hand flats. We should bear in mind that the 5% duty rate is on the high side. On the other hand, it is argued that buying a new flat costs much more than buying a second-hand flat, with a difference of more than 5%. However, differences in property prices are attributed to various factors. For example, better ancillary facilities are provided in new housing projects while maintenance is required for old buildings. Those who intend to replace their properties will really opt for new flats due to the 5% stamp duty. Therefore, we can see that during this period more people buy new flats than second-hand flats.

Having considered the various situations, I think Mr Tommy CHEUNG's amendment can address the problems in this regard. Firstly, a person replacing his property will actually have more time to dispose of his original property. This is also a fairer approach because if the person concerned cannot sell his original property subsequently … of course he may also sell his property at a much lower price because he has some leeway due to the 5% stamp duty exempted. If he can sell the original property within six months, he can get a tax refund. Even if he sells the property at a discounted price by 3%, he can still save 2%. However, if he is forced to reduce the selling price by 8% because he has to dispose of the original flat within six months, his loss will be greater than his gain. This will exert great pressure on the owner and therefore I consider it unfair. He will not speculate on the original flat within that six-month time frame. I cannot tell how many owners will do so among 10 000 or 100 transactions, but I think the possibility is actually low. Moreover, there is a hearsay in the market that interest rates will soon rise and this has aroused great doubts on property prices. In addition, the biggest "curb" measure nowadays is LEGISLATIVE COUNCIL ─ 15 July 2014 17027 not what we are discussing now, but that fact that Norman CHAN Tak-lam, Chief Executive of the Hong Kong Monetary Authority, is holding the credit. This has in fact caused the most lethal effect because buyers will be restricted by such conditions when a flat is put on sale.

Therefore, Chairman, upon careful consideration, the Democratic Party will support Mr Tommy CHEUNG's amendment. Of course, if Mr Tommy CHEUNG's amendment is not passed subsequently, the amendment of the Government will surely … this is rather difficult for us because the Government's amendment will create unfairness. But in reality, there are really some people who want to replace their properties and such amendment will give them more leeway. This is a reasonable demand and activity. Therefore, while we are not satisfied with the Government's amendment due to the unfairness it will create, the Democratic Party will still support the amendment if it can benefit some members of the public.

CHAIRMAN (in Cantonese): The meeting is now suspended and will resume 15 minutes after the special meeting of the House Committee to be held this afternoon has ended.

1.06 pm

Meeting suspended.

4.50 pm

Committee then resumed.

CHAIRMAN (in Cantonese): Committee will now continue to examine the Stamp Duty (Amendment) Bill 2013 and will now continue with the joint debate No VIII.

Does any Member wish to speak?

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MS STARRY LEE (in Cantonese): Chairman, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) is in support of the amendment proposed by the Government so that property owners who genuinely acquire a new residential property before disposing of the original one will have a longer time frame for replacing their properties, and can benefit from the refund mechanism.

The Government proposes to adjust the six-month time frame to commence from the conveyance on sale instead of the agreement for sale and purchase of the newly acquired property. This will give owners a few more months to dispose of their original properties and hence benefit from the refund mechanism. For those who buy second-hand flats to replace their original ones, we estimate that they will have an extra two to three months, depending on when they sign the agreement. For those who buy uncompleted flats, they will have reasonable time to dispose of their original property after taking over the new flats. This amendment has in fact responded to the various opinions expressed by the Bills Committee on Stamp Duty (Amendment) Bill 2013 (the Bills Committee), which pointed out that the originally proposed six-month time frame could hardly cater for the needs of owners changing properties, especially those who buy uncompleted flats. The DAB welcomes this amendment proposed by the Government.

Though the amendment is technical in nature, the property market has reacted strongly. Chairman, I remember that when the news about relaxing the commencement date of the time frame was released ― at that time, the proposal was not yet submitted to the Bills Committee for discussion; Mr CHEUNG, you may as well remember that the news was already spread on Monday ― the media gave wide coverage of the proposal, highlighting that the market considered such measure a means to reduce the effect of the "curb" measures, and owing to the extension, housing projects being put on sale would benefit most directly.

Certainly, after the announcement of the new time frame, we can see that new housing projects are really selling fast. While this is certainly related to the adjustment, I believe that for most buyers, the time frame for replacing properties is only one of the factors taken into consideration. A more important factor is the pent-up demand … they have more intention to purchase properties because of the news.

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As we may still remember, when the news about adjusting the time frame was released (that is, when the proposal was submitted to the Bills Committee for discussion), property stocks have reacted too. The Hang Seng Index and Sub-indexes climbed up for days in a row, with an accumulated increase of 6.8%. At the same time, the second-hand market has become invigorated too. I remember when I commented on the amendment on the radio the next day, the host showed me newspaper reports about small owners raising the asking prices or freezing the sale at once. Therefore, the adjustment should be regarded as a measure to reduce the effect of the "curb" measure. We must admit that such reduction has led to great market reaction.

We must carefully examine Mr Tommy CHEUNG's amendment. As I said just now, during the discussion by the Bills Committee, members considered the Government's amendment a mere technical amendment. But it turned out that this technical amendment has triggered a series of reaction which is really beyond my expectation. This has also further proved the theory about "message" often brought up by the Government. As a matter of fact, the property market is highly sensitive to messages; it does not matter whether someone deliberately makes use of the message or really believes in the message. Shortly after the news about the adjustment was released, newspapers have widely publicized the adjustment as a measure to reduce the effect of the "curb" measure. Moreover, residential properties are the most valuable properties to small owners. It is therefore reasonable for them to raise the asking prices for their properties. Potential buyers will also hold on for a while. Therefore, the series of reaction and chain effects are very natural.

In our view, the adjustment made in the last exercise can generally allow a reasonable time frame for owners who acquire a new residential property before disposing of the original one and enable them to benefit from the refund mechanism. As such, we cannot support Mr Tommy CHEUNG's amendment of further extending the time frame for those who acquire a new residential property before disposing of the original one.

Chairman, I so submit.

MR CHAN CHI-CHUEN (in Cantonese): Chairman, the Secretary always raises two arguments to criticize Members' amendments. Firstly, the amendments undermine the integrity of the policy, and secondly, they create confusing 17030 LEGISLATIVE COUNCIL ─ 15 July 2014 messages. In my view, these two arguments are nothing but a protective shield which could hardly be substantiated when they were cited earlier to oppose the numerous amendments proposed. However, on this occasion, I agree with the Secretary. If this amendment is passed, it will really convey very confusing messages.

I have to explain once again my attitude towards the amendments which are against the "curb" measures. In my view, the basic principle is that the "curb" measures should be implemented stringently. Secondly, if a loophole, especially a big one, is identified, we should plug it by all means. As pointed out in the amendment proposed by Mr James TO earlier on the acquisition of multiple properties under one instrument, I think such situation is a loophole and should be addressed and plugged.

Besides, should exemption be granted to situations where "innocent people are victimized" or "the wrong target is hit"? We should give some thoughts to this point. If the exemption will bring more advantages than disadvantages, we may try to tolerate as far as possible; otherwise, we should think twice if the exemption will undermine the effectiveness of the whole policy. As pointed out by the Government, we can do nothing if some innocent people are wrongly hit because they belong to the minority and have to sacrifice. However, regarding the previous amendment, the Government advised that no policy would be put in place to deal with cases of non-Hong Kong Permanent Residents purchasing their public rental housing flats and such cases would only be handled with discretion. We do not agree with this approach, but as the amendment has already been dealt with just now, we are not going to raise this issue again.

Regarding Mr Tommy CHEUNG's current proposal, that is, by amending the Stamp Duty (Amendment) Bill 2013 (the Bill), Hong Kong Permanent Residents (HKPRs) can, within 12 months, instead of six months as proposed in the Bill, after the acquisition of a new residential property, sign the agreement for sale and purchase to sell or transfer their only and original residential property in Hong Kong. As a result, they will benefit from the ad valorem stamp duty (AVD) refund mechanism set up for owners who acquire a new property before disposing of the original one, that is, they will get a refund of AVD of an amount equal to the difference between payments according to the new and old rates.

Some members of the Bills Committee advised that given the sluggish turnover in the current property market, a person who acquires a new residential LEGISLATIVE COUNCIL ─ 15 July 2014 17031 property cannot dispose of his original and only property at a reasonable price within the six-month time frame set by the Government. In fact, we have to look back at the policy objective of the "curb" measures, that is, to bring down property prices to a reasonable level affordable to those local buyers who are genuine users, especially those first-time home purchasers, as well as to help HKPRs acquire residential properties. These two points are of utmost importance.

However, when Mr Dennis KWOK spoke just now, he gave an account of the difficulties of some middle-class people in changing properties. For example, people may want to get a better accommodation if they have a bigger family or if they have a baby, this is understandable. But this is not the focus of the policy. The Government is not obliged to help the middle class get a better accommodation through this policy. Certainly I agree that most of the owners who change properties are law-abiding citizens and not speculators. But it is not appropriate to say that the Bill will victimize innocent people because it has already provided a six-month time frame. Of course some people may think that a six-month time frame is not enough. The shorter the time frame, the lesser bargaining power one will have. This is also the primary principle.

According to figures, in 2011-2012, among those who acquired a new property before disposing of the original one, 50% could complete the transaction of the disposed property within six months after acquiring the new property. Local banks provide transitional mortgage repayment period, usually for a period of six months, for owners changing properties. As such, people who first sell their owner-occupied flats would not have to sleep on the streets, and they need not take the trouble of renting a flat for a few months. The arrangement allows them to acquire a new property first and then sell the original one within six months, and get a refund of AVD of an amount equal to the difference between the original AVD rate and the doubled AVD rate.

In my opinion, the Government has already done a lot in this regard. Adjustment is already made to postpone the commencement date of the time frame from signing the agreement for sale and purchase to the conveyance on sale. Extension of the time frame for disposing of the original flat after acquiring a new one is tantamount to extending the time allowed for owners to hold more than one property. Owners can then have more time to dispose of their original property in the name of changing properties.

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Some netizens propose that if property prices are rising, owners should acquire a new property first and then sell the original one; but if property prices are falling, owners should sell their original property first before acquiring a new one. This is especially true to owners who are involved in second-hand market transaction. If Mr Tommy CHEUNG's amendment is passed, owners will have a time frame of 12 months to dispose of their original property. They may wait until prices go up further, or even hold the property for non-self-occupation, thus allowing them to benefit. In fact, giving a longer time frame may be "a disservice done with a good intention", a phrase often cited by the Financial Secretary. That means in theory this approach involves the least uncertainty: when a buyer acquires a new property, he should dispose of his original property as soon as possible because his intent is not to gain profit but merely to change the living condition. The concept of gain and loss should not exist in such a "flat-for-flat" situation. But if the time frame is extended for a little longer, owners will hesitate, thinking that they should hold on until the tenth month because the current price is not very attractive. They think property prices may rise, and so they do not sell the original property within six months but wait until the 10th or 11th month. If property prices drop by then, they may suffer a loss instead. Originally it is a simple act of selling a property after buying a new one. But given the time gap, owners tend to have a mentality to trying to make more profit.

Moreover, I think the amendment has really sent out confusing messages or has been manipulated. After the Administration announced in May that the time frame for disposing of the original property after acquiring a new one will be adjusted, the residential property market has been invigorated instantly. Here is a real story. A friend of mine paid a small deposit to buy a property in May, that is, before the proposal was announced. By the time the proposal was announced, the transaction was confirmed. But the press cited his case to illustrate the upsurge of property prices following the extension of the time frame for disposing of the original property after buying a new one. When we read the press report, we found it ridiculous because my friend decided to buy the flat by paying the small deposit long before the announcement; he did not decide to buy the flat owing to the technical amendment of the policy.

We should understand that both the real estate agents and the press like to make an issue of such news. I also agree that some members of the public may, after reading such exaggerated news, think that the owners concerned have made a good profit. They then become ambitious and try to make a profit in property transaction, even though they did not have the intention to speculate in the first place.

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Therefore, if further revision is really made to this policy, people will have the chance to make an issue of it. I am a fair person. There are some matters which cannot be exaggerated. Even if I say today that the Bill cannot be passed, real estate agents still cannot take this chance to push up the property prices. But in my friend's case, while it is obvious that the transaction price has nothing to do with this adjustment, it has been reported by the press that property prices surge sharply due to this technical adjustment. Maybe, the true reason is that my friend likes the flat and is willing to pay a higher price to buy something he likes.

The longer the time frame is extended, the public will more likely make wrong interpretation, thus pushing up instead of suppressing property prices. Certainly the reasons given by the business sector, such as excessive long presale period for uncompleted flats, are justified. But I think most people who intend to change properties will get involved in the second-hand market. Buying uncompleted flats is not the same as buying a completed property and this may transcend the demand for improving the living condition.

The reason for the Administration to grant exemption to those who acquire a new property before disposing of the original one is simply to cater for the needs of self-occupation. That means moving from one flat to another. The purpose is to make sure they have a shelter, rather than making a profit. Therefore, the Administration should not make owners feel that they have the chance to make a profit by speculation. This is also in contradiction with the policy objective of the "curb" measures.

In this regard, I think the Government has already made certain concession. By adjusting the commencement date of the time frame from the date of signing the agreement for sale and purchase to the conveyance on sale, it can already relieve owners' worries about insufficient time for replacing their properties. At the same time, this can avoid conveying a wrong message to the market of a downward adjustment of the "curb" measures. As such, I do not support Mr Tommy CHEUNG's amendment.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, do you wish to speak again?

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SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, during the scrutiny of the Bill by the Bills Committee, I have received views from a number of Members and stakeholders on the arrangement for owners acquiring a new property before disposing of the original one and I have also made thorough consideration on the subject.

To make a balance between maintaining the effectiveness of the measure and catering for the actual needs of the public in changing their properties, we put forward in May the modified proposal reflected in the current amendment of the Government. The adjustment has taken into account various views as far as possible. To manage the demand of those who have acquired residential properties, we decide to extend the commencement date of the six-month time frame for disposing of the original property after acquiring a new one.

In considering the views of various parties, we must take into account the complementary nature of the demand-side management measures. On top of the Government's modified proposal, if the time frame is further extended to 12 months, those who buy uncompleted flats may hold both the new and original properties for as long as 42 months because the current presale period for uncompleted flats can reach 30 months. This has already exceeded the 36-month time frame set for Special Stamp Duty (SSD). By then, even selling the newly acquired flat is not subject to SSD. This shows the complementary effects generated by the Bill.

After putting forward the modified proposal, the Government is pleased to see that members of the Bills Committee belonging to different political parties welcome the amendment. As mentioned by Ms Starry LEE just now, it is beyond our expectation that the message received by the market is that the Government is trying to be lenient and intending to have downward adjustment of the "curb" measures, thus heating up the property market. I also agree that we can see how sensitive the market is.

At this very moment, if Mr Tommy CHEUNG's amendment, which will further relax the arrangement for owners acquiring a new property before disposing of the original one, is passed, I think the stimulating effect caused to the market should not be neglected. This is not just alarmist talk and so I hope Members can think twice.

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MR TOMMY CHEUNG (in Cantonese): Chairman, I would also like to respond to the remarks of colleagues on my amendment. We often ask the Secretary whether the amendment will affect the integrity of policy and whether wrong messages will be disseminated. There are a few colleagues (including Mr CHAN Chi-chuen and Mr Gary FAN) who have indicated their support just now. However, just now Ms Starry LEE also said that something like this did happen even though the Bill has been under our scrutiny.

However, we should understand that the Secretary has in fact made an amendment. While we welcome his amendment, it is totally inclined towards developers, who will benefit by selling more new flats. A year ago, developers had to attract buyers by paying the stamp duty for buyers, but now they need not do so anymore. As such, just now some other colleagues (including those from the Civic Party and Democratic Party) indicated that while they may not like my amendment, they at least find it fairer when compared with the Secretary's amendment.

Certainly I would like to thank the Secretary for his response to my amendment by making further amendment and extending the time frame for two months. I guess the Secretary used to go to the wet market for grocery shopping because when I ask for six months, he gives me something extra by granting an additional two months. However, the problem is that he probably seldom goes to the wet market recently. He does not realize that bargaining is no longer common in the wet market nowadays. When I want to buy one catty of food, he gives me six taels instead. In fact, nowadays buying groceries in the wet market is simple enough for there is no bargaining. I have no idea why the Secretary has to bargain with me and take two taels away from me.

Unlike Mr WU Chi-wai, I will not expect the Secretary be kind and helpful all in a sudden. So I can only thank Mr Abraham SHEK because when he spoke just now, I find that he can really tell the good from the bad. Compared with the Secretary who only grants additional two months, Mr SHEK is much more insightful.

Chairman, just now Mr Dennis KWOK talked about young people purchasing properties. I would also like to take this opportunity to talk about my son. Ten years ago when he was not yet married, he bought a flat of a few hundred square feet. When his daughter was born, he replaced the flat with 17036 LEGISLATIVE COUNCIL ─ 15 July 2014 another one that was a few hundred square feet bigger; when later his son was born, he further replaced the flat with one over a thousand square feet. This is how a home is gradually made bigger bit by bit. In fact, many colleagues of the younger generation, such as Mr CHAN Chi-chuen and Mr Gary FAN, sometimes do not understand how they can identify flats for first-time home buyers. If people who own a flat of a few hundred square feet do not replace their present flat with a bigger one, if those with a 300-sq ft flat do not look for a 600-sq ft one; if those with a 600-sq ft flat do not look for a 1 000-sq ft one, how can those 300-sq ft flats be put on sale.

Besides, we can see that the Government's amendment is totally inclined towards property developers. It is understandable why Hong Kong people often say there is collusion between the business sector and the Government, that is collusion between government officials and major property developers, so that owners with a 300-sq ft flat cannot replace it with a bigger one even if they wish.

Just now Mr James TO has already given clear explanation, and so I am not going to repeat the saying of the Bureau. What I would like to say is that my amendment, if colleagues can still remember, in fact only proposes to extend the time frame by four months. Will this disseminate a wrong message? I do not think so. The Secretary insists that the time frame is long enough but the relevant figures are provided by the Government. With a time frame of six months, half of the owners (just now some colleagues said less than half of the owners) can dispose of their flats. Now the Government gives me an extra two taels by increasing the time frame by two months to eight months. I am not sure whether he knows how long an eight-month time frame is. If only half or less than half of the owners can dispose of their flats within six months, it means more than half of the owners cannot do so. Now the Government allows a time frame of eight months. Does it work?

Moreover, just now some colleagues indicated their opposition. Maybe they have not bought a property recently and do not know the procedure involved. But those professionals sitting on our right hand side who may have handled conveyance on sale and property transaction will know that the procedure is in fact very complicated. Under such situation, a six-month time frame is not enough at all. We do not want to convey a wrong message; we just want to reveal the fact that the Government is preventing some families from replacing their present property with a bigger one. When such families do not put on sale their small flats, how can such flats be released for first-time home buyers?

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Last week the real estate index indicated that the transaction volume of low-priced old flats for first-time home buyers (instead of first-hand uncompleted flats) is beginning to increase. Most users realize that there is a demand.

Chairman, the main purpose of my amendment is to attract more small flat owners to change flats and alleviate the worries of those who want to change properties. We do not want to see that these owners realize in the seventh, eighth or ninth month after buying a new flat that they do not have enough time to undergo the procedure and have to pay an extra hundred thousand dollars.

Chairman, I so submit.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the first amendment moved by Mr Tommy CHEUNG, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr CHAN Chi-chuen rose to claim a division.

CHAIRMAN (in Cantonese): Mr CHAN Chi-chuen has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

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Functional Constituencies:

Mr Albert HO, Mr James TO, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frankie YICK, Mr Charles Peter MOK, Mr Dennis KWOK, Mr IP Kin-yuen and Mr CHUNG Kwok-pan voted for the amendment.

Mr Frederick FUNG, Prof Joseph LEE, Mr WONG Ting-kwong, Ms Starry LEE, Mr CHAN Kin-por, Mr CHEUNG Kwok-che, Mr NG Leung-sing, Mr Steven HO, Mr YIU Si-wing, Mr MA Fung-kwok, Miss CHAN Yuen-han, Mr KWOK Wai-keung, Mr Martin LIAO, Mr POON Siu-ping and Mr TANG Ka-piu voted against the amendment.

Mr Andrew LEUNG, Mr Christopher CHEUNG, Ir Dr LO Wai-kwok and Mr Tony TSE abstained.

Geographical Constituencies:

Ms Emily LAU, Mr Paul TSE, Mr Alan LEONG, Ms Claudia MO, Mr WU Chi-wai, Dr KWOK Ka-ki, Mr SIN Chung-kai and Dr Helena WONG voted for the amendment.

Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr TAM Yiu-chung, Mr WONG Kwok-hing, Ms Cyd HO, Mr CHAN Hak-kan, Mr WONG Kwok-kin, Mrs Regina IP, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr WONG Yuk-man, Mr Michael TIEN, Mr Gary FAN, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Mr LEUNG Che-cheung, Miss Alice MAK, Dr Elizabeth QUAT, Dr CHIANG Lai-wan and Mr Christopher CHUNG voted against the amendment.

Dr Priscilla LEUNG abstained.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

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THE CHAIRMAN announced that among the Members returned by functional constituencies, 28 were present, nine were in favour of the amendment, 15 against it and four abstained; while among the Members returned by geographical constituencies through direct elections, 30 were present, eight were in favour of the amendment, 20 against it and one abstained. Since the question was not agreed by a majority of each of the two groups of Members present, he therefore declared that the amendment was negatived.

(Some Members left their seat)

CHAIRMAN (in Cantonese): Will Members please return to their seat.

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, you may now move your ninth amendment as set out in Appendix IA to the Script to amend clause 18.

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, I move my ninth amendment as set out in Appendix IA to the Script to further amend clause 18.

Proposed amendment

Clause 18 (See Annex II)

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the ninth amendment moved by the Secretary for Financial Services and the Treasury, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No Member raised their hands)

Mr LEUNG Kwok-hung rose to claim a division.

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CHAIRMAN (in Cantonese): Mr LEUNG Kwok-hung has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): A Member has asked when the meeting will end tonight. I think in any case the proceedings on the Stamp Duty (Amendment) Bill 2013 should be completed today. After the proceedings on this Bill is completed, I will start the proceedings on the Marriage (Amendment) Bill 2014 if I think the Second Reading debate on that Bill can finish by 10 pm today; otherwise I will not start the scrutiny of that Bill.

MR LEE CHEUK-YAN (in Cantonese): Chairman, in case the proceedings on the Stamp Duty (Amendment) Bill 2013 cannot be completed by 10 pm, will you extend the meeting to 12 midnight so that we can vote on the Bill today? What is your plan?

CHAIRMAN (in Cantonese): I think in any case the proceedings on the Stamp Duty (Amendment) Bill 2013 should be completed today.

MR LEE CHEUK-YAN (in Cantonese): Okay.

MR CHAN CHI-CHUEN (in Cantonese): Chairman, if the meeting has only one hour left, will you start the proceedings on the Marriage (Amendment) Bill 2014?

CHAIRMAN (in Cantonese): If there is only one hour left, I believe this Council cannot complete the Second Reading debate on that Bill. Therefore, unless the proceedings on the Stamp Duty (Amendment) Bill 2013 can be completed by 8 pm, this Council will not start the scrutiny of the Marriage (Amendment) Bill 2014.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

LEGISLATIVE COUNCIL ─ 15 July 2014 17041

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Mr Albert HO, Mr LEE Cheuk-yan, Mr James TO, Mr CHAN Kam-lam, Mr TAM Yiu-chung, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr WONG Kwok-hing, Mr Andrew LEUNG, Mr WONG Ting-kwong, Ms Cyd HO, Ms Starry LEE, Mr CHAN Hak-kan, Mr CHAN Kin-por, Dr Priscilla LEUNG, Mr CHEUNG Kwok-che, Mr WONG Kwok-kin, Mrs Regina IP, Mr Paul TSE, Mr LEUNG Kwok-hung, Mr Albert CHAN, Ms Claudia MO, Mr Michael TIEN, Mr NG Leung-sing, Mr Steven HO, Mr Frankie YICK, Mr YIU Si-wing, Mr Gary FAN, Mr MA Fung-kwok, Mr Charles Peter MOK, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Miss CHAN Yuen-han, Mr LEUNG Che-cheung, Miss Alice MAK, Dr KWOK Ka-ki, Mr KWOK Wai-keung, Mr Dennis KWOK, Mr Christopher CHEUNG, Mr SIN Chung-kai, Dr Helena WONG, Mr IP Kin-yuen, Dr Elizabeth QUAT, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu, Dr CHIANG Lai-wan, Ir Dr LO Wai-kwok, Mr CHUNG Kwok-pan, Mr Christopher CHUNG and Mr Tony TSE voted for the amendment.

Mr WONG Yuk-man abstained.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that there were 55 Members present, 53 were in favour of the amendment and one abstained. Since the question was agreed by a majority of the Members present, he therefore declared that the amendment was passed.

CHAIRMAN (in Cantonese): As Mr Kenneth LEUNG is unable to attend the meeting, he has withdrawn the notice of his amendment. I have waived the notice required for Mr Charles Peter MOK to move an amendment which is the same as the amendment withdrawn by Mr Kenneth LEUNG. Mr Charles Peter MOK has given notice to move his amendment as set out in Appendix IA to the Script to amend clause 18. The amendment seeks to provide a refund 17042 LEGISLATIVE COUNCIL ─ 15 July 2014 mechanism for a Hong Kong incorporated company or an Hong Kong Permanent Resident (HKPR) who has to pay doubled ad valorem stamp duty (AVD) for acquisition of non-residential properties.

MR CHARLES PETER MOK (in Cantonese): Chairman, I move my amendment as set out in Appendix IA to the Script to further amend clause 18. On behalf of the Professional Commons, I speak for Mr Kenneth LEUNG on the amendment originally proposed by him.

Under our proposed amendment, in certain specific situations, the amount equal to the difference between the ad volerum stamp duty (AVD) and the doubled AVD charged on the instrument of the non-residential properties concerned can be refunded. The amendment mainly seeks to enable, through the AVD refund mechanism, companies that have operated or intend to operate substantive business in Hong Kong to carry out normal commercial activities in a relatively fair and stable environment, so as to further promote and support the economic development of Hong Kong, as well as create and protect job opportunities, and even increase tax revenue and revenue from other fees for the Treasury.

Chairman, I believe the Government introduces the Bill with the intent to control the overheating trend of the property market through demand-side management measures, so that Hong Kong people can live and work in contentment. We should bear in mind that apart from living in contentment, we also need to work in contentment. Many colleagues mentioned that people do not want to become "shell-less snails"; may I draw your attention that people need a "shell" to live in, they (operators of small and medium enterprises (SMEs) in particular) also need a "shell" for business and work, so that they can survive.

In the past, SMEs in many industries could maintain their competitive edge because they had acquired their own industrial or commercial properties and hence they did not need to pay rents. This is one of the important factors for their survival and is in line with the long-term economic development of Hong Kong. Such situation is very common among SMEs in various industries, including the information technology sector to which I belong, as well as small and medium accounting firms in the accounting sector represented by Mr Kenneth LEUNG. This is an obvious development among SMEs, no matter it is a shop or an office. During the Second Reading, a Member talked about developing electronic trading in the future. I of course support this idea, but the LEGISLATIVE COUNCIL ─ 15 July 2014 17043 problem is that it is not possible to have everything in virtual form. The companies concerned still need to rent an office. It is not a problem for large enterprises, such as the enterprise established by Jack MA. However, local SMEs have no alternative but to pay high rent, as if they were pouring money into the sea. Many business starters in the information technology sector often reflect to me that this is the major problem faced by them in the process of development.

Moreover, our amendment will not affect the demand and supply of the residential property market. As such, what are the reasons for opposing the amendment? Have we thought about this carefully? Under our proposal, not all instruments of non-residential properties can get the AVD refund. Companies or persons applying for a refund must meet the following three criteria: firstly, the applicant is a Hong Kong incorporated company or an HKPR, charitable institutions are also included; secondly, the applicant has continuously used the property concerned solely for the purpose of carrying on the trade, profession or business in Hong Kong for not less than three years from the date of the relevant instrument (the relevant period); letting or sub-letting the premises concerned are not included; and thirdly, application for refund has to be made not later than two years after the date of expiry of the relevant period.

On 3 June, the Administration responded to the Committee stage amendment (CSA) proposed by Mr Kenneth LEUNG by highlighting a few points. I will give our response point by point. The first point made by the Government in its response is that the proposed refund arrangement in effect exempts all Hong Kong incorporated companies or HKPRs (including charitable bodies) from payment of the doubled AVD for acquisition of non-residential properties, which is inconsistent with the Government's policy objective in implementing the relevant demand-side management measures.

Our response is that a refund of the AVD subject to relevant criteria will not encourage any speculative activities. As the applicant has to continuously use the property for not less than three years, it will be very difficult to carry out speculative activities in reality. Nobody would hold a property for three years for speculation purpose. This certainly is not tantamount to exempting all Hong Kong incorporated companies or HKPRs from payment of AVD for acquisition of non-residential properties because there are many restrictions. The purpose of our amendment is not in conflict with that of the Bill originally proposed by the Government.

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In the second point in its response, the Government advised that it could hardly determine whether the non-residential property concerned is actually used for the purpose of a certain trade, profession or business. It will also be difficult to determine if a Hong Kong company or HKPR has continuously used the non-residential property concerned solely for the purpose of carrying on the trade, profession or business in Hong Kong. The prevailing stamp duty regime merely charges stamp duty on the basis of instrument effecting transfer of properties in accordance with their nature, irrespective of their actual usage by the buyers within a few years after acquisition. It will not be in line with the principle of proportionality in handling the problem if the Government were to change the stamp duty regime by introducing the determination of property usage for the purpose of the measures introduced in exceptional circumstances.

After hearing the Government's reply, we are perplexed. In order to control the property market, the Government has, when introducing the measure, explicitly stated that it will not bother how buyers would use the property. Everything can be done in exceptional circumstances. I also agree that the so-called principle of proportionality does not matter. The most serious violation of proportionality is that the Government seems to be reluctant to do more to strike the necessary balance. The Government keeps saying that the burden to the Administration will increase if it undertakes more tasks. The Government should be responsible for handling administrative matters, it should not only undertake those tasks it likes but ignore others that it does not want to undertake.

In fact, the three criteria in our amendment mentioned just now include self-occupation for three consecutive years and no letting or sub-letting is allowed. Applicants are required to take the initiative to apply for AVD refund, as well as take an oath and provide valid supporting documents to prove that the applicants have met the above conditions for the AVD refund. As the Inland Revenue Department (IRD) will decide whether an applicant is qualified for the AVD refund based on the objective evidence of the instruments submitted, there is no need to make any subjective assessment on the actual usage of the non-residential property concerned. If subsequently the applicant is found to have submitted false documents, he will have to bear serious consequences.

The third point in the Government's response is that in 2013 alone, there were over 10 000 transactions of non-residential properties. The IRD needs to deploy additional staff and resources to process and verify each and every refund application. This will entail substantial financial implications to the IRD.

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In our view, the Stamp Duty Ordinance (Cap. 117) and the Bill have currently provided for a refund mechanism. For example, section 29DD of the Stamp Duty Ordinance provides for, among others, refund of buyer's stamp duty in case of redevelopment. The proposed clause 29DE and clause 29DF also provide for partial refund of the AVD in disposing of residential properties in case of redevelopment and other circumstances, subject to certain criteria.

In his speech during the Second Reading, the Secretary has also mentioned that the IRD would handle the amended ordinance in accordance with legal principles. I totally agree with him and I believe that the IRD will have the ability to handle the cases arising from our amendment. The prerequisite criteria proposed by our amendment are all objective facts and will not constitute additional burden to the IRD in terms of administrative and financial resources.

The fourth point in the Government's response is that the property market remains unstable. The amendment concerned will disseminate to the market a message that the non-residential properties concerned will "defrost" upon expiration of the specified period, thus stimulating market demand for non-residential properties and affecting the effectiveness of the demand-side management measures.

In fact, we have been hearing the term "message" from the Government in these two to three days. The three criteria we propose are restrictive conditions in real terms, and exemptions are not rashly granted. If owners who are not running substantive business in their non-residential properties have made false claims, there are at present sufficient deterrence provisions. At the same time, as long as the Government clearly explains to the public about the criteria and mechanism of the AVD refund, I believe the amendment concerned will not be interpreted by the market as an unreasonable measure of the downward adjustment of the "curb" measures and in turn undermine the effectiveness of the demand-side management by the Government.

Chairman, the Government has insisted on imposing upward adjustment of the "curb" measures across the board, and is unwilling to make any downward adjustment for some special cases, for the only reason that this will disseminate a wrong message to the market that the "curb" measures would be adjusted downward, thereby reinvigorating market speculation. This is also the idea conveyed by the Financial Secretary on his blog article released this weekend, which is indeed full of platitudes. I think such a remark is not truly factual, and 17046 LEGISLATIVE COUNCIL ─ 15 July 2014 is too simple and even misleading. Why do I say so? Market messages are diversified and there is no one single interpretation. Apart from the messages disseminated by demand-side management measures, namely the "curb" measures, there are many other messages, for example, whether the Individual Visit Scheme will be tightened, whether land supply will be increased, the impact of the economic trend in international and Mainland markets. Another example is that if the proposal of setting up the Innovation and Technology Bureau is passed earlier than expected, will this encourage more information technology companies to acquire new offices or data centres?

Nonetheless, messages are just messages. As a matter of fact, property prices have been on the rise and transaction has been suppressed upon the introduction of the "curb" measures. In view of such effect, the Government's interpretation is that the "curb" measures should not be withdrawn or reduced; otherwise property prices will surge even more sharply. However, why cannot this be interpreted as the "curb" measures being totally ineffective? This indicates that the conclusion made by individuals by interpreting such messages is often based on personal stance, and may not be objective and reliable; also the conclusion may not reflect the ultimate outcome.

Let me cite an example. If our amendment is passed, real estate agents may tell their clients, "The effects of the 'curb' measures are reduced. It is time to buy a property!" This depends on whether buyers believe in the agents. On the contrary, as stated by the Chairman, the proceedings on the Bill must be completed tonight. If the Government's "curb" measures are passed without any amendment or without any downward adjustment (in fact downward adjustment has been made regarding one provision just now), real estate agents may still say that the proposal to increase the duty rates is not passed and the uncertainties in the market have been cleared; the increase rate is just a few percent and so it is time to purchase a property. They can say whatever they like; what matters most is whether buyers believe them. Therefore, the correlation between messages and consequences may not be as simple as conceived by the Financial Secretary or the Government. In our opinion, if the issue is really that simple, the Government would have been able to control property prices. But it turns out that it still fails to do so. Therefore, we do not think the Government should thus victimize innocent people. The Financial Secretary is worried that we may be doing harm despite our good intentions. But the fact is we are more worried that the Secretary is doing harm despite his good intentions.

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Therefore, I would like to stress that we really hope the Government's "curb" measures will not victimize innocent people or hit the wrong target, such that SMEs, which originally play the most important role in Hong Kong, are forced to pay an unfair cost because their normal practice of acquiring properties for business development is prohibited. This is the reason for us to propose the amendment.

Chairman, I will make further response when I have the chance later. Thank you, Chairman.

Proposed amendment

Clause 18 (See Annex II)

CHAIRMAN (in Cantonese): Members may now proceed to the ninth joint debate on the relevant parts of the original clauses and the amendment of Mr Charles Peter MOK.

MR JAMES TO (in Cantonese): Chairman, as I have explained in detail why the Democratic Party supports Mr Kenneth LEUNG's amendment as proposed by Mr Charles Peter MOK during the Second Reading debate, I will just speak briefly now. The Democratic Party thinks that we are now in a critical moment to curb speculation. In fact, the Government has implemented a number of measures to curb speculation, including Special Stamp Duty (SSD), Buyer's Stamp Duty (BSD) and the double stamp duty (DSD) which is now under discussion. Among them, the DSD is special in that it levies doubled stamp duty rate on the widest possible range of transactions. It not only seeks to curb speculation, but also increases the costs of transactions so as to reduce demand. If the only purpose is to curb speculation, the two stamp duties introduced earlier should be able to achieve a significant effect.

The problem is, the Democratic Party does not agree with the line drawn by the Government. I think the Government is determined to curb speculation by introducing the DSD even at the cost of causing a standstill to the market. It will introduce the measure even at the cost of affecting normal economic and social activities, as well as normal expansion of business enterprises or expansion of services provided by charitable institutions, which certainly will create job 17048 LEGISLATIVE COUNCIL ─ 15 July 2014 opportunities. For example, more social workers or part-time workers will be recruited to carry out the missions entrusted to charitable institutions by the Government. Business enterprises or charitable institutions are not prohibited from buying properties for expansion purpose, they only need to pay the DSD. The Government is in effect saying that it does not prohibit property acquisition for expansion purpose, it merely seeks more revenue from levying the stamp duty.

Let me give an example. An insurance group which has not acquired any property in Hong Kong in the last few decades now plans to buy a commercial building costing a few billion dollars as its headquarters, so that it can recruit a few hundred or a thousand insurance agents. It will have to pay stamp duty amounting to several hundred million dollars. In the end, this insurance group or other similar organizations may decide not to buy the building as its new headquarters because of the stamp duty or because they are worried about the risks involved with the government policy. It may decide to wait and not expand for the moment. Furthermore, some churches or charitable institutions are aware of the Government's frequent reminder that buying property at this time is risky, and since the Government is introducing the DSD, they will listen to the Financial Secretary's advice and decide not to buy a new property as its new headquarters. All expansion plans will be scrapped.

Some may query whether all economic figures of Hong Kong will drop if the abovementioned activities come to a standstill. Will Hong Kong people as a whole immediately notice a withdrawal of economic activities, a standstill in business expansion and a collapse of the employment market? Of course not. The reason is that the effect created will only be marginal. The problem is where should we draw the line? We should bear in mind that some people will feel the pinch. For example, the membership of a church has increased from 200 to 300 over the last 10 years … Frankly speaking, it is not an impressive growth rate at all and the church should really work harder to spread the gospel because its membership has only increased by 100 in 10 years. However, I know that is the real situation of some churches. With an increase in membership, the place is no longer big enough to accommodate all the members during Sunday services and so there is a need to buy a commercial property. What will happen if the church decides not to buy a commercial property because of the measure introduced by the Financial Secretary? Its members will have to crowd into the church and some may find the condition unbearable. These 200 to 300 people will then realize that the church has decided not to buy the property LEGISLATIVE COUNCIL ─ 15 July 2014 17049 because of the DSD. Certainly, the church can also take the view that since the Government is so greedy about money, all members of the church will have to put their contributions together to pay the DSD.

The question is, should we bring normal activities to a halt? Mr Kenneth LEUNG thinks of an idea which I have also mentioned before, but he has specifically written out the details. My view is, giving an exemption to an applicant who has continuously used the property for three years is a good and balanced suggestion. It may not be a perfect idea, but the Government will be going too far if it says that giving an exemption to an applicant who has continuously used the property for three years is a bad idea. Why? If the owner has continuously used the property for three years … the property cannot be leased out because leasing is an economic activity which can easily turn into speculation … investment is alright, and the different purposes have to be differentiated. Speculation is at the far end of the range of purposes, but it is also possible for a buyer to have mixed purposes. A buyer may purchase the property for investment and lease it out first, but he can sell it later when the market conditions improve and if he does, that will be a speculative activity. It is also possible that the owner considers the market conditions unfavourable and so he will lease out the property or use it himself on a long-term basis. The problem is, if an owner has received a rent of $1, or has leased out the property for one day in three years, sorry, he cannot get a refund of the DSD.

Some may ask whether an owner will pretend that he has acquired the property for self-use, that is, can he leave the property vacant and wait for the refund? I think that is a ridiculous suggestion. Leaving the property vacant means forgoing rent for three years. Some may suggest that the owner can start leasing out the property in the fourth year. My question is, will anyone forgo rent for three years to obtain a refund of several percent? Let us not forget that application for a refund has to be approved. Will anyone leave the property vacant and forgo rent for three years to pretend that he has acquired the property for self-use? Frankly speaking, the chance is slim. In other words, the idea of forgoing rent to wait for a refund is impracticable.

Application for a refund has to be approved. If an owner knows that the property is not for self-use, will he make an application for a refund? Although some will take the risk of death for wealth and make a bet, leasing out the property involves too many people … if only one of them reports on the owner, he will be damned. One can certainly say that it really depends on whether the 17050 LEGISLATIVE COUNCIL ─ 15 July 2014

5% represents a huge sum of money. Anyway, if one has actually leased out the property and many persons are involved in the transaction, it is very risky to lie about it. The owner will surely be imprisoned if found guilty of deceiving the Inland Revenue Department. There are precedents of such cases.

Furthermore, as I have suggested earlier, charitable institutions should be granted exemptions. Later on, … I do not know if Mr Kenneth LEUNG's amendment will be passed. If so, charitable institutions will get exemption. If not, … I will propose that charitable institutions be granted exemption in the following two or three debates. I will particularly suggest Mr Kenneth LEUNG to include exemption for charitable institutions in his amendment. In other words, a refund should also be given to a charitable institution if it has used the property continuously for three years. If Members intend to support my later proposal of granting exemption to charitable institutions, they can actually support Mr Kenneth LEUNG's amendment now. Certainly, Members have to consider whether according to his amendment, applications for exemption can be made not only by charitable institutions, but also by business organizations and companies, but at least, charitable institutions should be included in the relevant definitions and provisions.

Chairman, the most important thing is, the Government has said that even if the exemption will not be abused, providing an exemption will send the public a wrong message. If sending a wrong message is the Government's concern, it will have to worry about everything because anything can happen. All I can say is … after such an important debate in the Legislative Council … imagine after Members have intensively debated on Mr Kenneth LEUNG's amendment for a few days, we think the amendment has the greatest chance to be passed, but to everyone's surprise, it turned out that Mr WU Chi-wai's amendment is passed. That is disastrous; will this send a wrong message? You see, anything can happen in this world.

I only want to ask: What is the "wrong message" to be sent? What is it really? The "wrong message" is, using the property continuously for three years will suffice for the purpose of getting an exemption. Can you lease out the property? No. Can you leave the property vacant? You can, but if you do, you will forgo rent for three years. Other than that, there is no other "wrong message" to be sent. The only other message which I can think of is that if the Government grants this exemption, there will be further demands for other exemptions. I think that is what the Government means.

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There are a few points to bear in mind. First, the Chairman has said that this Legislative Session will end after we have completed the scrutiny of this Bill. I have counted the votes and I think the Bill will probably be passed no matter whether Mr Kenneth LEUNG's amendment will be passed or not. In other words, the message to be sent is, after this Bill is passed, the third "curb" measure will be implemented. The important thing is, even if the amendments are passed, those are only the decisions of Legislative Council Members, it does not mean that the Government will agree to the amendments. Speaking about sending wrong messages, after Mr WU Chi-wai's amendment has been voted on and passed just now, the Secretary has clarified the Government's stance … Knowing very well that Mr WU Chi-wai's amendment would be passed, he still maintained his stance, and stated that he would understand if the related amendment was passed in the Legislative Council.

Besides, when the Secretary stands up later to speak on this amendment, what will he say? He will certainly clearly state that he objects to it. In other words, if this amendment is passed, it only indicates that a sufficient number of Members have voted for it. However, after the Bill is passed, it will not be scrutinized any further and no Committee stage amendment can be made to include another exemption. That is not possible because the matter will be finished after tonight. It is not possible to introduce a private bill and the Government will not propose any other amendments. So what wrong message will it send? Does the Government worry that if the amendment is passed, some people will think that the Government will introduce another exemption out of respect for the Legislative Council? Is that the case? I really cannot understand what wrong message will be sent. Can the Secretary please explain to me what the wrong message is. Or is it the case that it is a wrong message because the Secretary says so? Does the Government think that it can crazily introduce any exemption all of a sudden? Frankly speaking, if that is the mentality of the Government, I can hardly communicate with it.

Therefore, I hope the Government … to tell you the truth, the Government's attitude is simple enough. Let me cite the words of "Long Hair", "Long live the never-ending radiance of LEUNG Chun-ying Thought! Long live the most noble, glorious and infallible policies of the SAR Government. Whatever proposed by the Government is correct and whatever proposed by Members is wrong".

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MR CHUNG KWOK-PAN (in Cantonese): I thank Mr Charles Peter MOK for proposing this amendment.

A few months ago, I proposed a Members' motion on encouraging the return of the industrial sector to Hong Kong for development which was passed with the support of the majority of Members from different political parties and affiliations. After that, I have been actively encouraging the industrial sector to relocate their factories back to Hong Kong. Let me give the Secretary two concrete examples.

Some industrialists are indeed planning to relocate to Hong Kong. One of them has intended to buy a 5 000-sq-ft unit in an industrial building. As the price is $3,000 per sq ft, the investment will amount to some $15 million. Since the Government has levied double stamp duty (DSD), he has to pay an extra amount of some $600,000. If he did not have to pay DSD, the amount of money would almost be sufficient to pay for the renovation of the factory premises, so that he can commence production in Hong Kong. The industrialist does not intend to speculate on property and he truly plans to relocate to Hong Kong. He also plans to recruit 50 to 60 workers which will really create employment opportunities. He hopes that he can set an example for other industrialists who are stationed in the Mainland and encourage them to return to Hong Kong for development, so as to make Hong Kong's industries more diversified. He is willing to invest more than $10 million to buy the factory premises and some $600,000 as tax. However, if he did not have to pay the additional stamp duty, the money could have been used for renovation. If the investment costs can be reduced, it will really provide an incentive to encourage the industrial sector to develop their business in Hong Kong.

I hope the Secretary can meet with this industrialist later. In his view, although the SAR Government said that it supports the development of new industries and encourages industrialists to relocate back to Hong Kong, it takes no action to back up its words. He really plans to do business in Hong Kong and the factory premises will be acquired for self-use, but he will not be granted exemption of DSD. If this amendment is passed, industrialists will be encouraged to relocate back to Hong Kong and commence production, thereby creating job opportunities and bringing about economic benefits. That will be a real help to Hong Kong.

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Let us consider a second example. As we all know, there are many cloth traders in Sham Shui Po. One of them has all along been renting a shop. After he has saved up some money, he plans to buy a shop to avoid rent increase by the landlord. Like the abovementioned industrialist, this trader will have to pay DSD too. Both of them are real users of the properties. I hope that the Secretary can give me some time so that I can arrange him to meet with these users. They are neither speculating nor investing on property; they buy property for self-use to start their business.

As pointed out by two Members earlier, if one goes inside a factory premises to take a look, he can immediately tell whether the owner of the property intends to do business in Hong Kong or to speculate. People in the commercial and industrial sector really hope that the Government can refund them the DSD paid three years later. Furthermore, the Secretary said earlier that this was a temporary measure to be reviewed after a year. Therefore, if this amendment is passed today, it will also be reviewed one year later, this is in July next year.

In addition, Members may wish to note that the Federal Reserve Board of the United States has started to purchase less bonds recently and there are indications that interest rate may increase next year. If the Federal Reserve Board increases the interest rate, Hong Kong will probably follow suit. Once the interest rate is increased, we expect that the interest rate hike cycle will be resulted. I believe the Secretary knows too well the impact of an increase in interest rate on property price. We only ask the Government to refund the DSD paid three years later, but the Secretary said that a review would be conducted one year after the implementation of the measure. Therefore, the Secretary should rest assured, DSD, which is imposed to curb speculation, should be refunded to the real users three years later.

We will support Mr Charles Peter MOK's amendment. Thank you, Chairman.

MR ANDREW LEUNG (in Cantonese): Chairman, during the debate held these two days, Members have in fact pointed out that there are many loopholes in this Bill.

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The Business and Professionals Alliance for Hong Kong (BPA) has said time and again that we support the Government to introduce measures to curb property speculation. While we think that this short-term measure under discussion is acceptable, we cannot stop all transactions and normal business operations and development to prevent short-term property speculation. Therefore, we have proposed to the Government from the outset to set a time limit of three years. In other words, if an owner has acquired a property for self-use without selling it in three years, the purchase will not be considered as a speculative activity. As Mr James TO asked earlier, why would owners choose to forgo rent for three years? If an owner really wants to speculate, he can at least get a rate of return of 2% or 3% each year by leasing out the property. Since he can get a total return of 9% in three years, why will he not do so in return for getting a refund of 4.25%? That does not make sense.

In addition, as some Members have pointed out, it will be very easy for the Government to ascertain whether a property is for self-use or speculation. We hope that the Government can consider factors of self-use and economic development and the need for property owners to apply for a refund of the ad valorem stamp duty. Singapore has set a three-year time limit for a similar tax, namely, the Seller Stamp Duty. If an owner sells a property within three years after acquisition, he has to pay the stamp duty. The rate is 15% in the first year, but it will be reduced by year and no stamp duty is chargeable after three years. I know the Secretary will tell me that Singapore has a different taxation system and so we cannot make a direct comparison. However, I want to tell the Secretary that the two systems are actually similar in nature. They seek to promote stable and healthy development in the property market without any excessive speculative activities which will make property prices soar and they do not want to deal a blow to normal investment and business activities.

We have suggested the Government to relax the measure so that exemption can be granted to owners who have acquired commercial and industrial property for self-use, but the Government said that would be hard to implement. We have specifically proposed to stipulate that an owner can apply to the Inland Revenue Department (IRD) for a refund of the double stamp duty (DSD) paid if he or she has not made any conveyancing transactions of the property within three years after its acquisition and has continuously used the property for three years. The Government can then examine each application and give a refund to those cases which meet the requirements and deal with the others differently. However, the Government said that the proposal would require a lot of manpower LEGISLATIVE COUNCIL ─ 15 July 2014 17055 resources which the IRD lacks and thus, implementation would be difficult. We have suggested that if the IRD lacks resources, the Administration can seek funding approval in the Legislative Council. Besides, taxpayers have all along been responsible for completing their own tax returns and providing the relevant information and the IRD can refuse to handle any application without adequate information. Nevertheless, the authorities have rejected our proposal on the basis that it would be difficult to open a case file for each application.

When I was speaking on Mr Abraham SHEK's amendment earlier, I said that we have asked for an exemption of DSD because sale and purchase of non-residential properties are normal business activities. Business enterprises can only operate on premises such as offices, factories or retail shops and they can only recruit more staff if they have a bigger place to operate. If they can do more business, they can bring more economic benefits to Hong Kong and they can then pay more tax to the IRD. However, the Government's response is that it will be difficult to implement the proposal. That makes Members think that the Government does not want to make any effort or any bigger effort. Does it really want to achieve demand-side management by inducing a standstill in the property market of Hong Kong?

The Financial Secretary posted a blog article a few days ago, saying that granting conditional DSD exemption for self-use commercial and industrial properties would not only significantly undermine the effect of DSD, but also send a very wrong message to the market. He also said that the Bills Committee was doing a disservice out of good intention and he described the relevant amendment as a downward adjustment of the "curb" measure. I have to tell the Financial Secretary and the relevant officials that the Government should not stop normal business activities which are not speculative. The Government's "curb" measure will distort the market and seriously affect the normal operation of commercial and industrial activities. The amendment we have proposed only seeks to right the wrong and assist enterprises which are operating in Hong Kong. Our amendment does not intend to encourage speculation, it only seeks to allow commercial and industrial enterprises to continue to expand their business and make normal investment. As such, the amendment should not be considered as a downward adjustment of the "curb" measures.

Mr Kenneth LEUNG's amendment is only applicable to a Hong Kong incorporated company or an Hong Kong Permanent Resident, where the applicant has acquired a non-residential property for the purpose of carrying on its trade, 17056 LEGISLATIVE COUNCIL ─ 15 July 2014 profession or business and the amendment proposes to include charitable institutions. Although the amendment is different from that of Mr Abraham SHEK, we consider both amendments acceptable. Furthermore, the amendment has excluded overseas companies and non-Hong Kong residents from the scope of exemption. Although we consider the approach inconsistent with the laissez faire principle, it is still better than the Government's proposal and therefore, the BPA will support the amendment.

Chairman, I so submit.

MS STARRY LEE (in Cantonese): Chairman, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) opposes Mr Kenneth LEUNG's amendment, that is, the amendment which is now proposed by Mr Charles Peter MOK. If the Legislative Council is to introduce any important exemption at this stage after the double stamp duty (DSD) has been announced and implemented for a year, it will create an effect tantamount to a downward adjustment of the "curb" measure and I believe it will revive speculative activities.

It is very clear that the public does not want to see property prices spiral and so any significant downward adjustment of the "curb" measure will be unwelcome. When we were discussing whether the applicability of the DSD should be extended to the non-residential property market yesterday, we have already pointed out that the rate of increase in non-residential property prices has already outgrown the actual economic growth and thereby pushed up the rent. Thus, some small businesses have to close down because they cannot afford the high rent.

Furthermore, when the "double curbs" measure (including the Buyer's Stamp Duty (BSD)) was introduced, it was only applicable to the residential property market. Given that interest rate remains low, it is expected that huge amount of hot money in Hong Kong will flow into the non-residential property market. In fact, figures have shown that after the announcement of the DSD, there are already signs of exuberance in the non-residential property market. An obvious example is the ridiculous speculative activities in the market of car-parking spaces. Therefore, we support the proposal to apply the DSD to the non-residential property market to cool it down so as to avoid the risk of creating a property bubble.

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Chairman, I have much respect for the Members who oppose the applicability of the DSD to the non-residential property market and I understand their justifications. I have listened carefully to their views at meetings of the Bills Committee and in the debate held yesterday. I also understand why some Members representing the business sector and the property sector have opposed the proposal. After this measure has been introduced across the board, it certainly led to certain reactions from the business and professional sectors. In fact, Members who oppose the proposal have been very co-operative. They have not filibustered at meetings of the Bills Committee and they have presented their views without filibustering at the Legislative Council meetings. I think Members who oppose the proposal only differ from the DAB in their judgment on the current situation of the non-residential property market and I fully respect their views.

On the other hand, although Mr Charles Peter MOK's amendment is well-intended, the meaning of self-use is too broadly defined and as such, it can easily be abused. The Honourable Member has proposed to add a new section 29DI with the heading "Partial refund of ad valorem stamp duty on instruments relating to non-residential property under certain circumstances". Subsection (1) reads, "In this section ― trade includes every trade and manufacture, every adventure and concern in the nature of trade, and a trade carried on by any charitable institution or trust of a public character which is exempt from tax under section 88 of the Inland Revenue Ordinance (Cap. 112), but excludes the letting or sub-letting to any person of any premises or portion thereof, and the sub-letting of any premises or portion of any premises held under a lease or tenancy".

To put it simply, I will interpret the amendment to mean that the requirement of self-use will be met as long as the owner does not let or sub-let the property. Efforts have indeed been made to include certain conditions in the amendment, and as Mr Charles Peter MOK said earlier, the applicant must be a Hong Kong incorporated company or an Hong Kong Permanent Resident and "the applicant has continuously used the subject property solely for the purpose of carrying on the applicant's trade, profession or business in Hong Kong for not less than 3 years from the date of the applicable instrument". Nevertheless, given that self-use is broadly interpreted as not letting or sub-letting the property, Members may consider whether there is any chance to stop people with sound financial standing, abundant funds and ulterior motives to exploit the loophole to speculate on property or avoid paying the DSD.

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Is it really that difficult to meet the condition of having "continuously used the subject property for not less than 3 years"? If the legislation provides for an exemption and a refund, given that Hong Kong people are so shrewd, they will naturally think of ways to be eligible. If the property is minimally used by placing a few desks in a non-residential property and arranging some workers to work there, the requirement of having "continuously used the subject property for not less than 3 years" will be met. Even if the owner uses the property as a storage place for stuff or some usable items, the requirement of having "continuously used the subject property for not less than 3 years" will also be met. Given that there is a tight supply of storage premises in Hong Kong, the claim of self-use can hardly be refuted.

Although Mr MOK mentioned earlier that the applicant would be required to make a declaration, I believe the applicant in the above examples will not be guilty of making a false declaration. Frankly speaking, I have given much thought to the issue and have asked Mr Kenneth LEUNG whether according to his definition of self-use, the requirement of granting an exemption will be met if the applicant has not let or sub-let the property. As I mentioned in the Second Reading debate, I understand that the across-the-board application of the Bill will affect the real users. However, if the meaning of self-use is so broadly defined, I have to ask: what are the chances of people exploiting the loophole and how big is the loophole. We must admit that as long as there is a chance of obtaining a refund, people will think of ways to reduce their tax burden. There are indeed lawful arrangements which they can make to achieve this purpose. We cannot say they have committed any offence and in fact, the professionals will have an opportunity to show their creativity.

Let us give the matter some deeper thoughts. If a person wishes to avoid paying the DSD and sell the property for speculation within three years, what can he do? I can think of a way at once, but there may be many other ways. For example, he can set up Company A in Hong Kong to meet the requirement that the applicant must be a Hong Kong incorporated company. After Company A has purchased a property, it can recruit some workers to work on the premises and thus, the property will have a low usage. In fact, Company A is owned by Company B which is an offshore company. As such, if Company B wishes to sell the property, it only needs to transfer its shares. According to my understanding, transfer of shares of an offshore company does not require registration with the Companies Registry and so the transactions will be difficult to trace.

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When we were discussing the BSD, we have had a long discussion with Mr Abraham SHEK. We found that while we intend to regulate companies incorporated in Hong Kong, if there are no measures to prevent abuse by transferring shares, a big loophole will arise and the Government will actually be opening a big door for people to avoid paying the DSD. Therefore, the DAB cannot support Mr MOK's amendment after careful consideration. The reason is that if "self-use" is defined as not letting or sub-letting the property, the definition is far too loose and will be subject to abuse. In fact, we cannot support a demand-side management measure to set a bar on non-residential property transactions on the one hand, and agree to open a door to circumvent the bar on the other. Therefore, we really cannot support the amendment after careful consideration.

Furthermore, we have to admit that the DSD, as introduced in this Bill, is subject to negative vetting, which is very different from other provisions in the Bill which have not been implemented. When we considered some proposals in other Bills in the past, we would conduct consultation, hold discussions and carefully consider the best way to implement them. However, the Bill before us has already taken effect, and different stakeholders have already grasped and digested the contents of the Bill as announced by the Government. If the Legislative Council agrees to open the door to exemption, it will create an effect of a downward adjustment of the "curb" measure. Therefore, I cannot agree with the saying that the amendment will not convey a wrong message because after all, the exemption proposed is very significant. Even though the amendment has not been passed and is still subject to discussion, a headline in a newspaper on 10 July reads "'Disarming' the DSD will revive speculative activities" and similar headlines can be found in other newspapers.

(THE CHAIRMAN'S DEPUTY, MR ANDREW LEUNG, took the Chair)

Perhaps some people may say that smart investors will be able to differentiate the different messages, but we have to admit that some guileless small investors may not have followed through the debate of the Legislative Council and they may not be able to tell the validity or otherwise of some information. In addition, if the door to exemption is opened, it will easily be abused by those who have abundant funds and with ulterior motives. Therefore, I think the amendment of the Bill subject to negative vetting cannot be supported. 17060 LEGISLATIVE COUNCIL ─ 15 July 2014

To summarize, the DAB considers that once we open the door to exemption, the measure of DSD will at least be "disarmed", if not rendered totally ineffective. Based on the above considerations, we cannot support the amendment.

I have to respond to Mr James TO's view too. He does not believe that some people will choose not to lease out the property to avoid paying the DSD. However, according to my observation, the DSD involves a huge amount of money. In the case of an overseas insurance company acquiring a property in Hong Kong as cited by many Members and I in the Second Reading debate, the difference in the amount of stamp duty payable will be as high as $190 million if the company is granted DSD exemption. Since such a huge sum of money is involved, will there be people who would try to exploit the loophole? I believe Members will not be so innocent as to say no abuse case will arise. Given the loose definition, even I can immediately think of a few ways to avoid paying the DSD.

I remember that during the debate held yesterday, when Mr James TO was speaking on the proposal on tightening the conditions to grant exemptions for mentally incapacitated persons, he said that cases of abuse could emerge easily and we could not rule out the possibility only because such a case had not occurred yet. The door to exemption will indeed provide opportunities for those with ulterior motives and abundant funds to avoid paying the DSD by using different methods. In fact, it is very probable for them to continue to speculate on property which will push up property prices and rent.

Deputy Chairman, I so submit.

MR LEE CHEUK-YAN (in Cantonese): The Government rarely attaches so much importance to the voting preference of the Labour Party. The Government does so this time because it worries that we will not support it. We rarely support the Government, but we do this time in opposing Mr Kenneth LEUNG's amendment as proposed by Mr Charles Peter MOK. In fact, we oppose the amendment not because we want to support the Government, but because we want to combat real estate hegemony which is most important.

Real estate hegemony has harmed Hong Kong and its people and it will kill Hong Kong. In order to achieve normal development of our economy and improvement of the livelihood of Hong Kong people, we must curb the rise in LEGISLATIVE COUNCIL ─ 15 July 2014 17061 property prices. If the rise in property prices is curbed, members of the public and the enterprises will have funds to spare because they do not have to spend all their money on high property prices and rent. At present, enterprises and members of the public have to spend their funds and their life-long savings to pay for high property prices and rent. Hence, a fall in property prices and rent is actually crucial to the diversified development of the economy of Hong Kong.

Hong Kong is spending a lot of effort in encouraging the development of creative industries. The Government has therefore proposed to establish an Innovation and Technology Bureau and set up creative industries. We think these efforts are useless because those who intend to work in the creative industries cannot even afford to rent a place to engage in creativity work. How then can they work in the creative industries? In particular, for people who first start their business … those who have set up their business in response to this trend long ago are doing fine, they have earned enough; but the problem is, these people will often engage in property speculation instead of creativity work now. Therefore, real estate hegemony can be regarded as the source of all evils in Hong Kong. If we do not combat real estate hegemony, our economy and the livelihood of the people of Hong Kong will be ruined by real estate hegemony and the deformed property market. Under the circumstances, we consider that curbing the rise in property prices is clearly the most important task before us.

When Mr Kenneth LEUNG was discussing the matter with us and when Mr Charles Peter MOK was delivering his speech earlier, both of them have made it clear that they truly wish that small and medium enterprises (SMEs) which have used their property continuously for at least three years can be granted exemption of the double stamp duty (DSD). Certainly, Members will admit that there is a loophole. Apart from that problem, the Labour Party also doubts whether the arrangement proposed by them can really help the users. In our view, a fall in property prices and rent will be the biggest help to the users. That is particularly true for SMEs because very few, if any, of them can afford to buy property. The number will be insignificant anyway. The biggest help to users and SMEs will be a fall in property prices and rent. As we all know, after the Government has proposed measures to revitalize old industrial buildings, the prices ― not the functions ― of old industrial buildings have been "revitalized" to a level more than six times the price in 1999. That is what has happened in Hong Kong. Once a message of revitalization is conveyed, property prices will soar because of speculative purchases.

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If we adopt the arrangement for self-use suggested in Mr Kenneth LEUNG's amendment as proposed by Mr Charles Peter MOK, we will be sending a concrete message to some people that the "curb" measures will be adjusted downward. Will it cause the state of irrational exuberance in the property market to continue and will it distort market messages, just as has distorted public opinion? The situations are actually similar. Just as Carrie LAM has distorted public opinion in political matters, the proposed arrangement will distort market messages which will in turn add fuel to speculative activities and the rise in property prices.

It is easy to distort market messages. According to the economic theory of "asymmetry of information", it is easy for those who have access to information to manipulate it. The property market is a market in which information can easily be manipulated. Neither the buyer nor the seller has full access to information, only the real estate agent has. Hence, the agent can control the climate of the market. If he says, "It is the time to buy because the price will keep on rising", the seller will ask for more and the buyer will have no choice but to buy at a higher price.

Where there is asymmetry of information, information will be distorted. Once it happens, the market players will become emotional. Once they become emotional, the property market will be in a state of irrational exuberance. Once the market is in such a state, property prices will continue to rise. Over many years in the past, economic and property bubbles all over the world are thus created. Speculation on tulips in the past was even more ridiculous. A bubble was created in the tulip market and there were speculative activities even on tulips. It certainly happened many years ago, but like tulips in the past, property in Hong Kong and other parts of the world is something on which people are now speculating. Under the current state of irrational exuberance in the property market, we will certainly object to sending any message which will make market players and the society think that the "curb" measures will be adjusted downward, resulting in a rapid rise in property prices.

In our view, curbing property prices through introducing the "curb" measures or increasing the duty rate will be the biggest help to the public. The Labour Party reiterates that we are not only demanding the Government to increase the duty rates in the short term, but also introduce long-term measures which will curb property prices and rent, including introducing a capital gains tax and rent control. We believe that only by introducing these measures will the LEGISLATIVE COUNCIL ─ 15 July 2014 17063 prices of commercial, industrial and residential buildings become reasonable enough for the public to operate their business and buy their own homes. We think these are the aspirations of the people of Hong Kong. What the Government is doing now is not enough. Real estate hegemony has been allowed to fatten up for many terms of the Government, be they led by LEUNG Chun-ying or Donald TSANG. Now, the Government is only trying to exercise a slight restraint. I am worried that in the long run, the Government will revert to fattening up real estate hegemony.

We oppose Mr Charles Peter MOK's amendment today because we really want to help operators of SMEs in Hong Kong to buy or rent property at a lower price. That is what we want to do. Of course, we are very pleased that we have made history in passing Mr WU Chi-wai's amendment today. However, we may not be able to make history again with this amendment. Although we may become sinners in history, we are not trying to make history for the sake of it; we are trying to make history for the public. After all, our voting preference is guided by the welfare of the public.

Thank you, Deputy Chairman.

MR DENNIS KWOK (in Cantonese): Deputy Chairman, the Civic Party supports Mr Kenneth LEUNG's amendment as proposed by Mr Charles Peter MOK. We support the amendment for the following main reason. Although the policy intent of the Bill is to cool down the overheated property market and to curb speculative activities in particular, certain aspects of the Bill which are excessive have to be rectified by Mr Kenneth LEUNG's amendment. While the Bill as amended will become more focused on the original policy intent, it will not affect transactions of certain types of property which should not be affected.

As we all know, two main groups of people will be affected by the property market. They are the users of residential property and the users of commercial and industrial property. Since we are discussing on how speculative activities can be combated, we will not talk about the speculators. The real users of both residential property and commercial and industrial property will be greatly affected, although the degree of impact may differ. Therefore, we have to ask the Government what is the original policy intent in introducing the measure; which types of speculators is it targeting; and how is it going to help real users to purchase property for their own use at an affordable price.

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As the Bill has not differentiated commercial and industrial property from residential property, the original intent to "curb" prices of residential property will also affect those of commercial and industrial property. According to the Government, this side effect is actually intended. It wants to prevent people from turning to speculate on commercial and industrial property when they cannot speculate on residential property. The Government said that producing the side effect is part of its policy. We cannot say that the Government's expectation is unreasonable because it has intended to achieve a similar purpose. My point is, if the Government intends to prevent speculators from engaging in any type of speculative activities, the drafting of the Bill should focus on the speculators and the speculative activities. Therefore, the respective demands for residential property and commercial and industrial property should be dealt with appropriately.

Although the Government intends to capture all in one net, or "to kill indiscriminately", we hope that the innocent will not be victimized and the measure will not affect the normal operation and business of shops and commercial premises which are properly used. Mr Kenneth LEUNG's amendment has appropriately fine-tuned the Bill. If the Government does not accept his amendment, it will be handling the matter in a sloppy and irresponsible manner. Mr LEUNG's amendment is directed towards prospective buyers who have a real need to purchase shops for commercial and industrial use because the amendment provides that a buyer of non-residential property can get a refund of the double stamp duty if the subject property has been continuously used solely for the purpose of carrying on the trade, profession or business for not less than three years after acquisition.

I believe the amendment which provides that the applicant has to hold the property for three years to get a refund can already exclude many speculators who will grasp every opportunity to sell their property for profit. If the Inland Revenue Department (IRD) requires the applicant to provide proof that the subject property has been used for the purpose of carrying on its profession or business, and so on, there are many ways to do so. For example, the applicant can ask a lawyer to certify that the subject property has been used by the applicant for the specified purpose for the past three years. Generally speaking, the requirement can be met by preparing a number of documents or going through certain declaratory procedures and it is very easy to prove. Certainly, the procedures will be more complicated than those required by the IRD in relation to LEGISLATIVE COUNCIL ─ 15 July 2014 17065 other stamp duties we have in the past, but it is important to note that this is an extraordinary measure. The extraordinary measure is directed towards the overheated property market and it is "an extraordinary measure taken at an extraordinary time" according to the Government. As "an extraordinary measure taken at an extraordinary time", the approach has to be extraordinary and more manpower has to be deployed to deal with the problems. Therefore, the Government cannot reject the amendment by saying that it will require more manpower to ascertain whether the applicant has used the property for self-use in the past three years. That is not a reason at all because the Government has to provide the resources to avoid "victimizing the innocent", such as the buyer who have really bought a commercial property for self-use. When Mr LEUNG put forward this amendment, he has considered this point and he intended to take care of the real users, particularly small and medium enterprises. He wishes to avoid the situation in which the "double curbs" measure will further increase the demand and tighten the supply of commercial property in Hong Kong which will eventually harm the users.

Deputy Chairman, unless the Government clearly indicates that even real businessmen will or may be considered as speculators and they will receive the same treatment as speculators, we cannot see why it cannot accept Mr LEUNG's amendment. In fact, the Government should thank Mr LEUNG for putting forward the amendment and it should carefully consider whether there is any problem with the amendment. After listening to the views given, I cannot find any problem of implementation, or any technical problem which cannot be resolved by solicitors and the IRD. Are there any significant mistakes or omissions in the drafting of the Bill? Apparently there is none.

In fact, Mr LEUNG's amendment has … we have not supported Mr Abraham SHEK's proposed exemption, but we share his aspiration to avoid killing the real users of shops and office premises. Mr Kenneth LEUNG's amendment has balanced various concerns and it can avoid affecting the real users. It is thoughtful in that it preserves the Government's policy intent on the one hand, and takes care of the need of the real users on the other. Therefore, we cannot understand why the Government cannot accept good advice. If the Government can accept good advice regarding the amendment on the six-month time frame, why can't it do so in connection with this amendment? This amendment is indeed necessary and I hope that the authorities can reconsider if there is any reason not to support Mr LEUNG's amendment.

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Deputy Chairman, with these remarks, I support Mr LEUNG's amendment as proposed by Mr Charles Peter MOK.

MR ABRAHAM SHEK (in Cantonese): Deputy Chairman, I support the amendment proposed by Mr Charles Peter MOK on behalf of Mr Kenneth LEUNG.

In the speech made by Mr Dennis KWOK just now, he explained the reasons why I have proposed my amendment earlier. I have considered the matter from the original intent and spirit of the Bill and have taken a broad view of the matter. As I said in my earlier speech, the legislative intent of the "curb" measure is to enable Hong Kong people to purchase Hong Kong property without affecting the normal economic operation and development of Hong Kong. Therefore, I have proposed my amendment from a macro and broad perspective in the hope that the "curb" measure will not affect the operation of our economy.

I understand that my amendments will not be passed because Members of the opposition camp will object to all of my proposals. The problem is, they think that the amendments will benefit the real estate sector without considering the facts or the legislative intent. If something will benefit the real estate sector, it will benefit the economy and so it will also benefit everyone economically. If the real estate sector does not build any buildings, what is to become of the livelihood of some 300 000 workers? How about the 1.5 million Hong Kong people? Will the steel reinforcement workers have any work? We should actually consider a variety of factors.

As a matter of principle, I think Mr Kenneth LEUNG's amendment is concerned about the middle class. He wishes to avoid victimizing the innocent, particularly small and medium enterprises (SMEs) which have really purchased property for their own use. They want to free themselves from the problem of high rent so that they can focus on their business. Besides, they can also mortgage the purchased property to increase their cash flow. For these reasons, I hope Members will support the amendment.

However, my heart aches after listening to Mr LEE Cheuk-yan's speech. He said it was not that he did not want to support the amendment proposed by a fellow Member from the pan-democratic camp, but if he did, he would allow property developers to benefit. He chooses to sacrifice the interests of SMEs LEGISLATIVE COUNCIL ─ 15 July 2014 17067 which Mr Kenneth LEUNG is concerned about in order not to benefit property developers. One should not think like that; one should say what is right as right, and denounce what is wrong as wrong. Mr LEE explained that he did not support Mr LEUNG's amendment because he wanted to achieve the single purpose of enabling SMEs to buy property. How could that be done? I am not sure if I have misheard him, he said he wanted to see a collapse of the property market and a drastic fall in property prices and rent.

What Mr LEE has said is really shocking. According to Article 2 of the Basic Law, the capitalist system shall be practised in Hong Kong. That means prices are to be determined by the market. It will be disastrous if Mr LEE became the Chief Executive, won't it? He is determined to push down prices in the market. I remember that during the financial turmoil in 1997, many properties became negative equity assets. If we listen to Mr LEE Cheuk-yan's suggestion, the 1.2 million property owners in Hong Kong will become negative equity asset holders. He should not think like that, should he? He is totally illogical. The Financial Secretary is right in saying that some Members are doing a disservice out of good intention. Deputy Chairman, the comment applies to Mr LEE Cheuk-yan. I do not know if he is a good man with good intention, it seems that he is. Deputy Chairman, what does doing a disservice out of good intention mean? In 2012, I proposed to give enterprises stamp duty exemption so that our local enterprises could buy Hong Kong property after going through certain procedures, including making a declaration. Back then, Mr LEE Cheuk-yan objected to my proposal, as in the case he raised his objection today, but he supported the proposal of the Government to give a refund of the Buyer's Stamp Duty (BSD) to property developers. Was that doing a disservice out of good intention? On that occasion, he even supported the Government's proposal of levying 100% stamp duty after the properties have been sold under urban renewal programmes and refund the duty to the property developers after three years. However, he refused to support SMEs this time around because that would benefit property developers. What kind of logic is it? He must have totally forgotten what he has done in the past.

Ms Starry LEE also said that the Democratic Alliance for the Betterment and Progress of Hong Kong will not support the amendment because it would encourage speculative activities. How will this happen? It is very clear that a mechanism has been put in place to stop companies from assigning the properties concerned. Mr Kenneth LEUNG has explained clearly that the properties cannot be sold, leased or left vacant and they can only be used by the owners. 17068 LEGISLATIVE COUNCIL ─ 15 July 2014

Using a large part of the property and leasing out a small part of it is not even allowed. Under the circumstances, why do we not give Mr LEUNG our support? If the principle is not to weaken the effect of the "curb" measures and according to this logic, the earlier amendment in relation to the Tenants Purchase Scheme will also negate the overall effect of the "curb" measures. Why should an exemption be given to owners of public rental housing units under the Tenants Purchase Scheme but not SMEs which are doing business? We should analyse the problem logically.

I think the Government should sometimes relax its control on the group of people who are really creating wealth for the society and not treat them as bandits. These people do business for the benefit of Hong Kong. SMEs, in particular, generate 90% of the total business volume of Hong Kong and employ 1 million-plus employees. Why can't we assist these SMEs which are creating wealth? We should not exploit them in various ways.

According to Article 108 of the Basic Law, Hong Kong has adopted the low tax policy. However, the Government suddenly introduced the measures of levying the BSD at the rate of 15% and increasing the DSD from 4.5% to 8%. As such, how can our tax policy be regarded as low? Since Mr LEE Cheuk-yan has suggested earlier to introduce other types of tax as well, I cannot understand how he can still consider himself a Legislative Council Member who has sworn allegiance to uphold the Basic Law. He has not even understood Article 2 and Article 108 of the Basic Law.

Deputy Chairman, we have to carefully consider what the amendment entails, understand which group of people will be affected and whether the amendment will bring economic benefits to society as a whole. I think Mr Kenneth LEUNG's amendment has done a good job in saying what is right as right, and denounce what is wrong as wrong. It has preserved the spirit of my amendment and narrowed down its application to help those who are really doing business.

Deputy Chairman, I support the amendment.

MR CHARLES PETER MOK (in Cantonese): Deputy Chairman, I thank Mr Abraham SHEK for his speech. Apart from Mr Kenneth LEUNG, I am here today. I would like to respond to Mr LEE Cheuk-yan's earlier speech. LEGISLATIVE COUNCIL ─ 15 July 2014 17069

Unfortunately, Mr LEE is not in this Chamber now. I hope he can hear what I am going to say. He said he wanted to combat real estate hegemony. I agree with him and also wish to do so. However, I do not agree with his logic. My biggest worry is that although he intends to shoot "real estate hegemony" or property developers with a rifle, he may gun down small and medium enterprises (SMEs) by mistake. That is why we have stressed and repeatedly expressed our concerns about victimizing the innocent today.

Mr LEE said that SMEs and the commercial and industrial sectors have not done well in creative industries mainly because of real estate hegemony. I think there are problems with his logic because the real situation is not that simple. Real estate hegemony, high rent and soaring property prices are indeed some major problems faced by SMEs and the commercial and industrial sectors. However, we cannot use this as a reason for proposing that we should leave everything behind and combat real estate hegemony first … Mr LEE even said that the proposed Innovation and Technology Bureau should not be set up and it is useless to do anything. I definitely disagree with him because things are not that simple. It is alright for him to object to this amendment, but I hope he will not oversimplify matters. He said he objected to the amendment because he wanted to combat real estate hegemony. I think that will be victimizing the innocent too.

Real estate hegemony may well be the source of all evils, but I am afraid Mr LEE's approach cannot topple real estate hegemony, it will only affect many SMEs instead. That will be unfair. We expect government policies to be fair to everyone, big companies, small companies and all members of the public alike.

Mr LEE quoted the example of the revitalization of old industrial building and pointed out that the Government's policy has pushed up the rent. However, whether the policy of revitalizing old industrial buildings is a success and whether we should support the amendment are two separate issues. I do not want to spend time discussing the problems involved in the policy, but even if there are problems with the policy or that it has failed to achieve the anticipated effect, the policy and this amendment under discussion are two separate issues altogether.

Furthermore, Secretary, when Members asked you to consider Mr WU Chi-wai's amendment in the earlier discussion, you have raised some policy considerations. Regarding this amendment, you may have to take many "policy considerations" into account too. Nevertheless, we think that many of the policy 17070 LEGISLATIVE COUNCIL ─ 15 July 2014 considerations you mentioned are actually political considerations, you have to consider them regardless of whether you have secured a sufficient number of votes or not.

I would like to say a few words to those Members who do not intend to support this amendment. Members may have supported the other amendments earlier, including Mr WU Chi-wai's amendment to give exemption of the doubled ad valorem stamp duty (AVD) to owners of public rental housing units under the Tenants Purchase Scheme. This amendment under discussion is based on a principle which is almost identical to that of the earlier amendments and failure to pass this amendment will also victimize the innocent.

Another point which I hope Members will understand is that, the passage of this amendment will similarly not affect the Government's major principle of controlling property prices through demand-side management measures. I must admit that some Members may think there is a difference in effect. However, we hope Members will consider the underlying principle. Is victimizing the innocent fair and just? Is it fair to those who have been "victimized" by you, or to those who have been excluded from the policy of exemption by you? In terms of the impact on the economy, is it an appropriate and reasonable policy? The most important point is, we are only talking about non-residential property. Thus, Members should not mix things up and begin by saying that the public cannot afford to buy their own homes, they have great difficulties in "boarding the train", and so on. In fact, this amendment will only cause a minimal effect, if any.

The stamp duty levied at a rate of a few percent will, however, have a significant impact on SMEs. It will affect their business decision on how to maintain the best operating environment. Some may ask, and actually Mr Albert CHAN did, whether a period of three years will be too short. However, we have to draw a line somewhere and a period of five or seven years begs the same question. What we are trying to do is to formulate a balanced policy and we hope Members will notice and understand.

Certainly, I greatly respect Members of the People Power and the Labour Party, and even the final decision of Members of the Democratic Alliance for the Betterment and Progress of Hong Kong. Considering the current situation, it seems that support votes from our fellow directly elected Members are far from sufficient.

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I think Mr Albert CHAN of the People Power expressed his views very well a few days ago, which is last Saturday. He made two points. First, he was worried that the "curb" measures will miss the target and victimize the innocent. An "across-the-board" policy only serves to make things easier for the Government at the expense of some local companies, particularly SMEs.

The second point raised by Mr Albert CHAN was that we have to think of ways to provide the best support for SMEs with deep roots in Hong Kong. Since Mr CHAN has put it better than me and he sees the matter in its correct perspective, I am now quoting his viewpoint. Unfortunately, Mr CHAN may not support the amendment now, but I hope he can reconsider it. Ultimately, it is a matter of principle. We hope that everyone who will be affected by the amendments of this Bill will be fairly treated and we should definitely not treat some of them unfairly.

Earlier, many Members have voted on the amendment which is described as a downward adjustment of the "curb" measures and they will soon be voting on the other amendments. My position and in fact, the position taken by Mr Kenneth LEUNG and Mr Albert CHAN is that ― I think if Mr CHAN is present, he will agree with me ― we will support any amendment if it is fair and reasonable to the people of Hong Kong, different business organizations and SMEs. Therefore, when there is an amendment which concerns the grassroots, such as the earlier amendment to give DSD exemption to owners of public rental housing units under the Tenants Purchase Scheme, we will support it. Regarding the other amendments … even if my amendment is not passed, Mr James TO will still propose an amendment to give AVD exemption to charitable institutions. Regarding that amendment and the amendment proposed by Mr TO earlier to give AVD exemption in relation to property transfer among close relatives, we think they should be supported because we should not victimize the innocent and all these amendments are fair.

We hope Members will apply the same principle in considering whether exemption should be given to SMEs for using non-residential properties. I hope Members will adopt the principle of equal treatment, fairness and justice and support small local enterprises with their roots in Hong Kong. However, I expect some Members may object to this amendment, but later support the amendment to give AVD exemption to charitable institutions later.

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I really hope that Members will not pick and choose like that. I hope they will not look at my amendment through tinted glasses and discriminate against it only because the target group is companies. My amendment is actually based on the same principle. If supporting my amendment will promote real estate hegemony, supporting the other amendments mentioned above will have the same effect. Why do we have to differentiate among them? I hope Members can consider this point.

Finally, many people mentioned the question of conveying messages. Will a message of a downward adjustment of the "curb" measures definitely give rise to an overheated market? Over the last two days, I have heard Ms Starry LEE repeatedly say that property prices soared after the Government extended the transitional period for property owners to acquire a new property for replacing the original one, but is there necessarily a causal relationship between these two incidents which appear to have occurred one after the other? Professor … things are not that simple even in the studies of economics, right? Ms LEE's view is apparently unscientific. Do we really have sufficient data and reasons to conclude that the extension of the period is the only reason for the price rise?

On the contrary, I am more convinced by Mr James TO's view. The problem is, with the market coming to a standstill and purchasing power being suppressed for so long, if the Government fails to release the tension but continues to adjust the "curb" measures upward … perhaps the Government is still short of land supply … what will happen? The tension may also cause an "explosion". Therefore, we have to think of ways to tackle the problem under reasonable circumstances … my view is that we should alleviate or release the tension effectively under reasonable circumstances.

We have proposed the amendments with a view to achieving fairness on the one hand, and avoiding an "explosion" on the other. I hope Members can consider the downward adjustment of the "curb" measures from this perspective. I believe the amendments will make the entire policy more reasonable to all members of the public and entities of Hong Kong. They will also enhance the effectiveness of the policy of demand-side management and control. We should not take the simplistic and one-sided view that a downward adjustment of the "curb" measures will send out confusing messages.

Thank you, Deputy Chairman.

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DR LAM TAI-FAI (in Cantonese): Deputy Chairman, the fact that a buyer who purchases a number of properties with a single instrument can be exempted from paying the double stamp duty (DSD) reflects that this "curb" measure lacks credibility and force. Since such a ridiculous and outrageous thing can happen, the "curb" measure obviously is riddled with loopholes. On the other hand, an Hong Kong Permanent Resident or a Hong Kong incorporated company which purchases a non-residential property, say a plant, an office or a factory, and uses it continuously for three years, cannot even get DSD exemption from the Government. The Government says that the mechanism of granting exemptions will be prone to abuse and people can easily exploit the loopholes. Is that argument acceptable? I, for one, will surely not accept it. We cannot understand the criteria and standards adopted by the Government and its argument is terribly unreasonable. This piece of legislation to introduce the "curb" measure is unfair and unjust because it has chosen to penalize small and medium enterprises (SMEs) which intend to purchase non-residential properties for self-use.

Deputy Chairman, as the Government has repeatedly said that the "curb" measures intend to combat property speculation and curb speculative activities, I have taken the trouble to ask the Government what does it mean by "property speculation" and how does it define the word "speculation". Although I have sought the advice of the Government a few times, it has not given me any reply. Since the word "speculation" has puzzled the public and SMEs, I will share my views with you today. If a person buys a property for self-use, he has made an investment; if he buys and sells the property for profit, he has engaged in property speculation. What then is "property speculation"? It is an attempt to make quick profits by buying and selling a property within the shortest possible time. In other words, making quick profits is the only purpose. The buyer does not intend to use or lease the property, and he does not intend to hold it for a long term and treat it as an investment. What is a typical feature of such behaviour? It adopts a "buy low, sell high" strategy. What are the characteristics of the property portfolios of these buyers? They change constantly. These people constantly buy and sell properties to make profits and they do not intend to use or hold the properties. They may not even inspect the property. If they consider a property suitable, they will buy it immediately and sell it through a "confirmor sale" the day after. I think the Deputy Chairman may have heard of a "confirmor sale" before. I consider such activities as "property speculation" which should be combated. Property speculation will easily develop into a trend of property price spiral; consequently, real users and SMEs cannot afford to buy. The Government should implement measures to curb these activities specifically.

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However, if a Bill enables the Government to introduce an across-the-board measure to kill both property speculators and users, it is obviously inadequate and riddled with loopholes. Is it necessary to revise an inadequate policy and plug loopholes in a Bill? Even a stupid man will answer in the affirmative. If the Government does not take the necessary actions, the entire business environment will be adversely affected. That is the reason why I have repeatedly asked the Government about the definition of "speculation".

Is the period of three years of continuous use too short? Three years is actually a long time. It is not easy for SMEs to pay mortgage instalment for three years. Since the current economic and market conditions are so poor, it is difficult to do business and SMEs are already struggling to pay mortgage instalment with their meager profits. Failing to give them DSD exemption is tantamount to increasing their operation costs and the costs of buying property and thus making life more difficult for them. First of all, we have to understand why SMEs buy non-residential properties. Instead of speculating, the SMEs buy properties to increase their assets, fight inflation and avoid being affected by the landlord's demand for rent increase, so that they can maintain business competitiveness. Deputy Chairman, unfortunately, our Government is not compassionate and understanding. It does not understand that under the harsh current business environment, we have to support SMEs which really want to buy properties to do business and for their own use.

Deputy Chairman, have these two terms of Government introduced any good economic measures to help SMEs? Can you give me an answer? Can you think of any such measures? If you cannot think of any immediately, it shows that there are none; if you have to take some time to think, it shows that no good and important measures have been implemented. I no longer expect the Government to formulate any measure to help SMEs, I only hope that it will not deal any more blows to them, in particular, SMEs which really want to carry on their business. Therefore, I hope the Government can show clemency in enacting this Bill and does not insist on going its own way just for easy implementation of its administrative measure. I hope the Government will not argue that it has to maintain consistency in its policy. The reason is that when a buyer can get DSD exemption by purchasing a number of properties with a single instrument, that argument cannot stand and the Government will lack all credibility.

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The Government can actually make a counter offer to Mr Kenneth LEUNG. If it thinks that the period of three years is too short and the time will pass in the blink of an eye, it can proposal to extend it to five years. The Government can make a counter offer. We, SMEs, will then discuss the proposal. We may consider that since we intend to use the properties ourselves, we may as well wait for two more years to get a DSD refund. The Government should adopt the "Let's talk" approach in this matter, as in the case of drawing up the constitutional proposals. We should not proceed to do whatever the Government says is good and refrain from doing whatever it says is not good. Yesterday, Mr Abraham SHEK made an across-the-board proposal to give DSD exemptions. The Government disagreed with him and pointed out that there were too many loopholes in his proposal. In fact, Mr Kenneth LEUNG proposed this amendment so that his attempt to help will not become a total defeat. As the saying goes, even if he cannot get an orange, he can at least get a tangerine. He is only trying his best to do something for SMEs.

Therefore, I very much hope that the Government will not be narrow-minded and stubborn. The Government can require SMEs to provide proof that the property purchased is for self-use, it can also require SMEs to make declarations, as in the case of filing tax returns and those who provide false information in their declarations will be liable to imprisonment. Alternatively, a system can be set up in future, under which an owner who is found to make a false declaration about using the property himself will not only be criminally prosecuted, but also be required to pay punitive stamp duty amounting to two to four times of what he should pay had he not committed the offence. There are many measures to stop people from committing offences and abusing the system. However, since the Government is not willing to formulate such measures, the real users and the honest SMEs have to bear high property prices and stamp duty of a few percent more. That will deal a blow to SMEs which accounts for 98% of all businesses in Hong Kong. This is a very wrong move indeed.

Deputy Chairman, I support this amendment not because I belong to the industrial sector and will support any proposal which favours the industrial sector and SMEs; I support this amendment because if a buyer has continuously used a property for three years, it indicates that he has no intention to speculate, and such a purchase should not be regarded as a speculative activity. Hence, the measure to curb speculation is not applicable to such case. If the Government continues to implement the "curb" measure, it will create a total mess. Therefore, we must support Mr Kenneth LEUNG's amendment. I also hope that Mr Albert CHAN 17076 LEGISLATIVE COUNCIL ─ 15 July 2014 can rebut my viewpoints after listening to my speech and considering it carefully. Should purchasing a property and continuously using it for three years be regarded as a speculative activity? If an industrialist adopts the practical approach of buying a plant and using it for three years … Mr CHAN is familiar with some industrialists too and I know that he has recently visited some SMEs in Vigor Industrial Building to understand their difficulties in the face of the demolition of the building. Mr CHAN and I had a long chat on that occasion. I suggest he can ask his friends from the industrial sector whether they think that using a property for three years after purchase is a speculative activity. On the other hand, making a "confirmor sale" is a speculative activity in which the owner adopts the "buy low, sell high" strategy. It will be a speculative activity if the property is sold within a short period of time. If an owner sells a property after three years, that is not a short period of time because it is very difficult to pay mortgage instalments for three years.

Deputy Chairman, I so submit.

MR TONY TSE (in Cantonese): Deputy Chairman, first of all, I have to make a declaration. I own properties and I also have a real estate consultancy that may engage in property transactions.

Deputy Chairman, Mr Kenneth LEUNG's amendment proposes that if the applicant is a Hong Kong incorporated company or an Hong Kong Permanent Resident (HKPR) and has continuously used the subject property solely for the purpose of carrying on the applicant's trade, profession or business in Hong Kong for not less than three years from the date of purchasing the non-residential property, the applicant can make an application to the Inland Revenue Department not later than two years after the date of expiry of the relevant period for refund of the difference between the ad valorem stamp duty (AVD) payable under the new rate and the old rate.

As I said in the resumption of the Second Reading debate, although I agree that a company owned by a HKPR should be entitled to a refund of the AVD for purchasing property if certain conditions are met, I opine that this refund mechanism provided to companies registered Hong Kong may encourage speculative activities in the non-residential property market and create a loophole which will significantly dilute the effectiveness of the demand-side management measure to cool off the property market. In addition, I think it is very difficult to LEGISLATIVE COUNCIL ─ 15 July 2014 17077 determine and prove whether a property owned by a company has been purchased for self-use or not.

Of course, some may suggest requiring the applicant to make a declaration. If so required, I think the authorities should formulate guidelines on making declarations. If they do not, people may be prosecuted if mistakes are subsequently found in the declarations. I also think that the period of three years is too short. Based on these reasons, I find the mechanism of not providing exemptions or refunds to these companies acceptable and I have reservations about Mr Kenneth LEUNG's amendment.

Deputy Chairman, in order to determine whether the property owned by a company is purchased for self-use, the term "self-use" has to be clearly defined first. In addition, it has to be provided clearly what arrangements will be made for different possible situations of self-use and how those situations will be dealt with. In fact, many Hong Kong companies will purchase properties for self-use, but the property concerned will often be held by a separate company. In other words, the company which holds the property may not be the company that operates the business. Under such circumstances, will the property be regarded as purchased for self-use? Besides, some enterprises may use a large part of the purchased property for self-use, but lease out a small part of it. In those cases, will the property be regarded as purchased for self-use? If so, will it be necessary to assess the value of the part of the property which is for self-use in order to calculate the amount of the refund? I believe these problems have to be resolved.

In fact, the examples which I have given are rather simple. I believe there will be many more cases of a more complex nature which are hard to determine at present. We have to consider these problems. If the proposals in the amendments are implemented and a refund mechanism is put in place for companies registered in Hong Kong before we have carefully considered and resolved the problems, disputes (and even legal ones) will arise in future. I have noticed that Mr Kenneth LEUNG's amendment has not provided any answer to these problems.

Furthermore, some enterprises which carry on their business on their own properties may have one company to hold the property and another to carry on its business. When they calculate their profits, they may deduct the costs of rent from their revenue for the purpose of paying profits tax. Applying the conditions of Mr Kenneth LEUNG's amendment to these cases, if an enterprise 17078 LEGISLATIVE COUNCIL ─ 15 July 2014 wishes to apply for the AVD refund, its acquired property will have to be held by the same company which carries on its business and no rent should be payable. In terms of taxation planning and arrangement, is that the best choice for an enterprise?

There are a number of problems with the amendment and since the benefit to the society is our primary concern, I will not support the amendment. Thank you, Deputy Chairman.

MR WU CHI-WAI (in Cantonese): Deputy Chairman, in the speeches of a number of Honourable colleagues and in the Government's reply, it is pointed out that far-reaching impacts will arise if the amendment concerning the doubled ad valorem stamp duty (AVD) proposed by Mr Kenneth LEUNG or currently proposed by Mr Charles Peter MOK on Mr LEUNG's behalf is passed. What are the impacts that the Government has always mentioned? The Government stated that this would encourage short-term speculative activities in non-residential properties, dilute the effectiveness of the measure, and convey a wrong message to the public, calling into question the Government's determination to stabilize the property market. These are the strongest comments of the Government on various amendments. The most important policy objective of this Bill is to stabilize the property market.

On stabilizing the property market, the Government will spare no effort to ensure that short-term speculative activities would not continue to flourish. If the Government has a few policy principles, I believe this is the most important one. I can say for sure that the SAR Government and the Secretary would try their best to attract investors to make long-term investments in Hong Kong as long-term investment is essential to the survival of Hong Kong as a financial city. For this reason, Singapore has also adopted the criterion of three years when handling the same or similar bill, providing that buyers can apply to the Government for tax rebate three years after the purchase of industrial and commercial properties or non-residential properties.

Why does the Government constantly use the same trick? It keeps on stating that the amendments to the Bill on stamp duty may convey a wrong message to the market and upset the integrity of the policy. The crux of the problem is that the Government has been unwilling to distinguish between speculation and investment when formulating the Bill. If it was willing to focus on combating speculative activities, I think the amendments of many Members LEGISLATIVE COUNCIL ─ 15 July 2014 17079 could be included in the Bill. As far as I remember, in the course of examining the Stamp Duty (Amendment) Bill 2012, the Government's representative who participated in the discussions were "human recorders"; they kept repeating the arguments such as "upsetting the integrity of the policy" and "conveying a wrong message to the market", totally ignoring the reasonable amendments proposed by Honourable colleagues.

Mr Kenneth LEUNG's amendment may still have much room for further patching up and plugging the loopholes, but I would like to discuss with the Secretary on the basis of policy principles. In formulating a Bill, if no consideration is made on the fact that the Bill may "overkill", this will affect the policy objectives that the Government wants to promote and develop, that is, encourage the public and companies set up with overseas funds or by Hong Kong people to station in Hong Kong for long-term development of Hong Kong's economy, so as to confirm their long-term commitment to Hong Kong through long-term investment. Even so, the Government is still unwilling to provide policy support and it even introduces this Bill to "overkill" them, forcing them to pay more stamp duty.

Some may think that this is not a big deal; if Hong Kong is a blessed place, foreign investors will still come to Hong Kong even if they have to pay higher tax; investors will continue to invest in Hong Kong and operators will continue to do business in Hong Kong. As Hong Kong is a blessed place, if people get higher returns after paying the taxes levied by the Government, the measure will not be a matter of concern. By this logic, we should not worry about the Government's objection to increase the profits tax. However, the Government considers that a slight increase in profits tax may have significant impacts. As Honourable colleagues should recall, when we reviewed tax matters, the Government said that no changes on profits tax should be made as any changes might affect government revenues and cause the withdrawal of foreign investments or funds from Hong Kong. Why do these problems become insignificant when dealing with stamp duty right now? If these problems are unimportant, the Government should not use them as an excuse in the future when we, the pan-democrats, propose a review of the tax regime and examine whether enterprises making huge profits should pay more tax. Having said that, I know the Government is going to hold me back in the future, claiming that I said it was wrong to increase tax.

(THE CHAIRMAN resumed the Chair)

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We often discuss if policies should be consistent and how such consistency can be attained. By consistency, we hope that the relevant policy will facilitate economic prosperity, so that enterprises and SMEs willing to make long-term investment in Hong Kong and willing to undertake commitments can effectively plan their future. If so, should we bear the adverse consequences that may be, or considered by the Secretary that will likely be, caused by this amendment? I hope Honourable colleagues with opposing views can seriously reconsider whether our policies should encourage long-term investment in Hong Kong by enterprises of various sizes?

The corresponding policies also affect charitable institutions. Mr James TO has proposed an amendment on charitable institutions which are not exempted from tax. It would be better if his amendment can be included in this amendment because if charitable institutions, after payment of taxes, can apply to the Government to get back the taxes paid based on their actual work performance and commitment to the community in the past three years, this approach is highly reasonable.

However, the Government considers that Mr James TO's amendment on charitable institutions should not be passed because it will convey a wrong message. During our previous discussions on the Stamp Duty (Amendment) Bill 2012, I remember that the Government also said that this amendment should not be passed because there were over 6 000 charitable institutions in Hong Kong and they might adopt various weird means to evade tax payment. These institutions might even be manipulated as tools for property speculation in Hong Kong. In that case, it would be more satisfactory if charitable institutions can also be included in this mechanism proposed by Mr Kenneth LEUNG because there are better means to ensure that the charitable institutions cannot adopt weird measures.

I think the whole issue is rather ridiculous. The Government has always stressed that wrong messages should not be conveyed, but it did convey a wrong message when discussing the amendments to the Bill. What message is that? The message is that the Government does not encourage long-term investment in Hong Kong by local people and overseas investors; even if long-term investments are made, additional taxes should be paid. Does the Secretary think that this message is unimportant? Will this message have no impact on our economy? When compared with the authorities' focus on combating short-term speculative trading, will this message bring more advantages or disadvantages? I cannot LEGISLATIVE COUNCIL ─ 15 July 2014 17081 find such a comparison in Government's papers. Some may criticize us for making our wild guesses. However, in introducing such a major policy, the Government has even failed to make a cost-effectiveness analysis. It failed to tell us that there were no alternatives but to impose the same requirement, even at the expense of victimizing the innocent, for the message conveyed would be even more undesirable. The Government has not made such efforts and I simply cannot make a comparison. How then can I know the truth?

As far as I understand, and as stated in the policy address and all government statements, Hong Kong, being an international financial centre, should make the best efforts to ensure that investors are willing to come here and make long-term investment. Has the Government been successful in this respect? We have different views on tax arrangements, and the Government is even going to impose obstacles on the purchase of non-residential properties for long-term investment by requiring buyers to pay a higher price. How much are we going to lose consequently? Hong Kong people have to bear with the loss.

I think the core of the problem is ― let me repeat my comment on the Government's land supply policy ― this Government Bill reflects that one is bound to suffer losses if he is too greedy. The Administration is greedy in the sense that it finds it unnecessary to distinguish between speculation and investment, and making such a distinction will certainly involve a lot of trouble for businessmen and SMEs will adopt various weird and undesirable practices, creating more and more loopholes in the Bill. Nonetheless, if the Government is willing to discuss with Members to explore how the loopholes in the Bill can be plugged while maintaining Hong Kong's attraction for investment, the present situation would not have arisen. We have been debating, it is now 7.30 pm and with two and a half hours to go, the meeting of today will end, but we are still discussing Mr Kenneth LEUNG's amendment.

Chairman, I so submit, and I hope all Honourable colleagues who intend to vote against the amendment would seriously consider whether we would stifle the incentive of SMEs or overseas investors to make long-term investments in Hong Kong. If what we are now doing would really stifle their incentive, we have to think about the actual impacts and bear in mind the "pay first and refund later" arrangement in the amendment proposed by Mr Kenneth LEUNG or Mr Charles Peter MOK. The buyers have to prove that the premises are really for self-use and they also have to sign a lot of affidavits before they can get the refund. As every person involved in the transaction is required to sign, the restriction is 17082 LEGISLATIVE COUNCIL ─ 15 July 2014 actually very big. Given such a stringent restriction for the refund of a relatively small amount of tax, will buyers adopt any fraudulent practices? If what we give is disproportionate to what we receive, I think the amendment proposed by Mr Charles Peter is actually worth supporting. Hence, I hope all Honourable colleagues would seriously consider the amendment because I do not want to convey an undesirable message to the market that the Hong Kong Government or the community does not welcome long-term investment.

Thank you, Chairman.

MR CHAN CHI-CHUEN (in Cantonese): Chairman, the People Power held a press conference last night and announced that we would not support Mr Kenneth LEUNG's amendment.

Why do we have to take the trouble to hold a press conference? That is because both the media and the Government are very concerned about our voting preference. Perhaps our votes will really make a difference this time around. Let me tell Members that we have come to that decision after very careful consideration. I will give an account of our deliberations in this speech.

The People Power indicated that it would not support Mr Kenneth LEUNG's amendment initially. However, Mr LEUNG has persisted to persuade and lobby us to support him. Even after his arrival at Helsinki in Finland, he sent me a short message asking me to reconsider the matter and saying that he would answer any question which I might have. After some consideration, we asked ourselves if we could support him.

First of all, I have no doubt that when Mr LEUNG first put forward his amendment, he intended to put in place a stamp duty refund arrangement for the honest businessmen who really want to carry on their business in Hong Kong to purchase properties here. We have considered whether we should support him for this reason. We have considered supporting him from the perspective of small enterprises which have their roots in Hong Kong. I have many friends who belong to this group ― they are owners of small and medium enterprises (SMEs) who want to buy an office, a shop or a plant.

A good friend of mine owns a beauty parlour and she is an expert of acne treatment, I think Members may know who she is. Her strategy is that she will LEGISLATIVE COUNCIL ─ 15 July 2014 17083 only open a new branch if she has purchased the premises. She will not rent a shop because she does not want to be affected by any rent rise and so she has opened one branch after another after she has purchased one shop after another. She has certainly made a lot of money in this way and her strategy for the last 10 years has proven to be most correct. Even though she may not have made any profit from her beautician business, she has surely obtained huge profits from buying shops. People like my friend who are really carrying on their business may, however, not buy any new shop to open a new branch under the present circumstances.

In addition, I have an uncle who is operating factories in the Mainland. As we all know, the current business environment in the Mainland is not good and my uncle wants to relocate to Hong Kong. He wants to purchase a small unit in an industrial building to carry on his craft business, but the introduction of "curb" measures have made this not possible. Besides, some of my friends who are artists want to open their workshops in industrial buildings. They want to have their own band rooms or art studios so that they can carry on their business in their own place. I believe we can consider them as small enterprises or sole proprietors with their roots in Hong Kong. Mr LEUNG's amendment will help this group of people, but what are the negative side effects that it will bring?

The underlying principle of the Government's proposal to provide stamp duty exemption in relation to residential properties is to benefit Hong Kong Permanent Residents (HKPRs) who do not own any property. However, let us consider what the effect will be if this principle is applied to non-residential properties. Mr Kenneth LEUNG's amendment has indeed included the term "an Hong Kong Permanent Resident", but he has added the phrase "or a Hong Kong incorporated company". When the phrase "or a Hong Kong incorporated company" is added, the condition of being "an Hong Kong Permanent Resident" is rendered ineffective. The reason is that "a non-Hong Kong Permanent Resident" or even "a foreigner" can own or control a Hong Kong incorporated company. If the scope of the Bill is confined to restricting the ownership of non-residential properties to HKPRs, there will be room for further discussion.

However, the first condition of restricting property ownership to HKPRs cannot even be fulfilled. Therefore, including the term of "an Hong Kong Permanent Resident" in the amendment is superfluous, if not redundant. Frankly speaking, how many shops are held under the name of an individual? They are certainly held by companies nowadays.

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Furthermore, many Members said that we have to help SMEs and even micro enterprises. However, this condition is not specified in the amendment. If the amendment has not specified to help SMEs and micro enterprises, big enterprises can also be benefited. If the real intention of the amendment is to help SMEs and micro enterprises only, its provisions can be tightened, for example, in terms of the size of the company, the purchase price of the non-residential property, and so on. In other words, if the provisions are tightened, the amendment will better reflect its intention which Members would like to support. Regarding whether the period of continuous use should be three, five or seven years, it can certainly be further discussed.

Mr James TO said earlier that an insurance company would like to buy a property as its headquarters for business expansion. Mind you, such a company will not be an SME. Besides, he said that a church would like to buy a property to develop its evangelization work. If the persons in charge of the insurance company or the church or the pastor are told that the price of properties will drop by 20% to 30%, they will probably decide not to buy the properties but to lease for the time being. At this critical time, I think we should not send a wrong message to individuals who wish to set up a business of their own. It will make them hesitant about buying the property and place them at the crossroads. As I often say, if the Government wants to help young people by providing loans through the Home Starter Loan Scheme, it should not do so when the climate is rough. If a young man does not want to buy property or is undecided about buying the property, and the Government grants him a loan, it is tantamount to encouraging him to buy. If the market conditions worsen after he bought the property, he will be stuck with it and immediately become a victim. I think we should help business start-ups but not encourage them to buy property, particularly at this time. I expect it will be difficult for business start-ups to buy a shop or a plant when the price is so high now. Hence, I suggest they can rent for a year or two and see how it goes. If we believe in the words of the Government, these are extraordinary measures taken at an extraordinary time, we can wait and see if the Government will withdraw them after a year or two.

What I mean is that the measure under discussion will not only send a wrong message to the market so that some will make use of it to speculate on property, but also send a wrong message to those who want to invest in operating a shop or a plant or engage in artistic work and are hesitant about buying property. It will incite them to make an investment. Therefore, when people ask me whether they should buy a residential property or a shop, I will certainly LEGISLATIVE COUNCIL ─ 15 July 2014 17085 not encourage them to do so. The reason is that the current market conditions are really unstable and who knows when the market will plummet? Besides, some Members have said that they are worried that the Occupy Central movement will adversely affect the economy of Hong Kong and will cause a big loss. Anyway, one should consider the external economic factors, local factors, factors of the Mainland, political factors and many other uncertainties. I think young people who want to carry on their own business or who start up a business should not purchase property only because of the incentive provided by the exemption given by the Government as a matter of policy.

Finally, as Ms Starry LEE has clearly said, if a non-residential property is held by a company, the property can be transferred by transferring the shares of the company. Some people are more familiar about these things, I mean these "tricks" than me. Perhaps they should not be called "tricks" because they are lawful activities. Although we intend to open a door to grant exemption to help the so-called SMEs, micro enterprises and sole proprietors, we are actually opening a door to grant exemption to benefit many other big enterprises or international enterprises. Therefore, the amendment is too loosely drafted.

Furthermore, there is the problem of conveying messages. In other words, will the measure convey a wrong message to the market? I am not sure. Earlier, I have raised some doubts. For example, will the passage of the amendment cause property price to soar? I think it may not. However, considering the original intention and the objective of the policy, I think the amendment may not be able to achieve Members' well-intended objective of helping sole proprietors and small enterprises of Hong Kong wishing to establish their roots here to buy properties. Therefore, during the press conference held last night, we suggested some other policy or taxation measures which the Government can propose to help the so-called SMEs, micro enterprises and sole proprietors.

I believe after the People Power has discussed and examined those measures, we will propose them to the Government during debates on the policy address or the budget in future. Therefore, we cannot support Mr Kenneth LEUNG's amendment as proposed by Mr Charles Peter MOK and we have reached that decision after careful consideration.

I so submit.

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MR CHAN KIN-POR (in Cantonese): Chairman, quite a few Members have mentioned today the case of an insurance company having to pay tax amounting to hundred million dollars after acquiring a commercial building. This amendment proposed by Mr Charles Peter MOK on behalf of Mr Kenneth LEUNG may help the company get a tax refund three years later. Though facing with great pressure, I still have to consider this amendment very carefully and seriously.

It is a great pity that the amendment proposed by Mr Charles Peter MOK on behalf of Mr Kenneth LEUNG is sloppily drafted. For example, the self-use period is too short and there are too many loopholes that may easily be abused. If Mr Kenneth LEUNG is willing to improve the amendment by, for instance, consulting Dr LAM Tai-fai who has just expressed many views on how the loopholes can be plugged, or consulting humbly the views of Mr Tony TSE who is very familiar with the operation of the property market to improve the technical details, the amendment would then truly cater for small and medium enterprises (SMEs) without affecting the original intention of suppressing the demand for non-residential properties. With more stringent restrictions in various aspects, I believe even directly-elected Members can be convinced to give their support. The present situation where this amendment may not be passed mainly due to its shoddy contents would not have arisen. Therefore, I can hardly convince myself to support an amendment that is so sloppily drafted.

Moreover, I am also worried that the amendment would convey a very wrong message. As evident earlier, the Government's minor amendment to the regulations on residential properties was immediately interpreted as a downward adjustment of the "curb" measures, thereby triggering property speculation instantly. There is a very strange phenomenon in Hong Kong: what a person has actually done is not important; what matters most is how other people conceive what he has done. Thus, the truth often remains obscure. Many people may have been brainwashed by the reports of certain newspapers, they may be used to receiving information through particular channels. Hence, they have never received other information and they always focus on a certain aspect.

If the Government suddenly relaxes the requirements, I am sure that property prices will increase by certain percentage points within a few days. Therefore, in proposing and passing this amendment, Honourable colleagues are actually doing a disservice out of good intention. The property prices will definitely rise much higher than the exempted tax which is just a few percentage LEGISLATIVE COUNCIL ─ 15 July 2014 17087 points, and these companies will then have to pay more tax based on the larger amount. This approach is evidently wrong.

Based on the reasons mentioned above, I believe I cannot support an amendment which is so sloppily drafted. Thank you, Chairman.

MR TOMMY CHEUNG (in Cantonese): Chairman, after listening to the remarks made by a few Honourable colleagues, I think it does not matter if they support the amendment or not. The problem is that the argument of "conveying a wrong message to the market" has constantly been repeated. Some Honourable colleagues are very powerful indeed; they guarantee that property prices would certainly rise. I am not sure how much Mr CHAN would bet against me. He supports the Bill but if property prices soar … No matter what the odds are, I will certainly bet against him. Chairman, I really do not understand how Honourable colleagues can be so definite as if they had a crystal ball in hand. If so, we no longer need to sit here and we might as well go home early.

Chairman, the Government has recently worked very hard to secure supporting votes and it has also publicized widely, hoping that we would not support the amendment originally proposed by Mr Kenneth LEUNG, but is now proposed by Mr Charles Peter MOK. As compared to the amendment previously proposed by Mr Abraham SHEK which asked the Administration to exempt non-residential property transactions from the double stamp duty (DSD), Mr LEUNG's amendment is very conservative. The proposed tax refund mechanism only benefits Hong Kong Permanent Residents or companies incorporated in Hong Kong (including charitable institutions) and it is specified that the acquired non-residential properties cannot be used for speculative purpose within three years, and they must be used for specified businesses. In other words, the premises can only be used for carrying on trade, profession or business; and no letting or subletting of the premises or any part of the premises is allowed. Only when such requirements are met that applications can be made to the Government for a refund of the DSD.

An Honourable colleague has just said that the amendment is sloppily drafted. We have to understand that both Members are greenhorns and it is not easy to draft amendments. Since Honourable colleagues have expressed a lot of opinions and made many criticisms during the Second Reading debate of the Bill, 17088 LEGISLATIVE COUNCIL ─ 15 July 2014 we should actively participate in the deliberation of bills in the future, so as to refine them. Making criticisms is easy. When I operate a restaurant, many people criticize that the food is not tasty and the service is poor. However, if they operate a restaurant, the food they serve may taste even worse and their service may be poorer. Nonetheless, we are just doing things in our own ways. It is really easy to make criticisms.

The Liberal Party and I think that the amendment is stringently drafted and has put in place adequate barriers to ensure that only genuine users can get tax refund. Mr CHAN Chi-chuen has just asked how many people have acquired properties using their own names and how many people have acquired properties using the names of companies. It does not matter if he supports the amendment or not; sometimes, I really do not understand why Honourable colleagues can draw such a conclusion after careful discussions and thorough considerations.

Recently, the information released by the Government to the press is alarmist in nature. However, I would like to tell the Secretary, I speak more courteously tonight than yesterday night because I notice the good performance of the Secretary this morning. Whenever somebody expresses views that are not pleasing to the ears of the Secretary … the Secretary will tell lies repeatedly, so much so that he even believes in his words. After repeating the lies 20 or 30 times, and releasing information to the media, my Honourable colleagues are now singing the same tune as the Secretary. He is really brilliant.

The proposed arrangement in Mr LEUNG's amendment is actually modelled on the practice in Singapore. The Seller's Stamp Duty in Singapore is similar to the Special Stamp Duty in Hong Kong. In Singapore, it is specified that industrial properties that are held for more than three years are exempt from additional stamp duty, so as to differentiate between the user and the speculative markets.

I do not quite understand why Singapore can introduce a tax refund mechanism for non-residential properties, but this cannot be done in Hong Kong, given that both Singapore and Hong Kong are open economies. If no problem has arisen in Singapore in introducing a refund mechanism, it is unreasonable for the authorities to say that the introduction of a refund mechanism in Hong Kong would convey confusing information or stimulate non-residential property speculation. I am not sure if there is rampant speculation of office premises in Singapore.

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Chairman, Honourable colleagues like to compare Hong Kong with Singapore. When we discussed standard working hours, they said that Singapore had introduced standard working hours, but they did not mention that Singapore has a tax refund mechanism. Similarly, Singapore has not introduced minimum wage but Honourable colleagues have not mentioned this point. Moreover, the trade union representatives in Hong Kong have said nothing about the policy of foreign labour importation in Singapore. Honourable colleagues only mention information that is useful to them, but say no word on information that is to their disadvantage.

Undeniably, the Secretary's lobbying has been very successful and it is now generally considered that speculation will revive, which will impose heavier burdens on small and medium enterprises (SMEs). Just now, an Honourable colleague said that if this amendment is passed, speculation will become more rampant. A tax rate of a few percentage points is insignificant, but if property prices increase by several folds, the problem will be serious as the price will be even more unaffordable to buyers. We can express divergent views as we have freedom of speech.

However, when the authorities arbitrarily imposed DSD on non-residential properties last February, there was no sufficient evidence to indicate that there was speculation in the non-residential property market. The authorities are now saying that providing a DSD refund mechanism for non-residential properties would encourage speculation, which really confuses the public. In fact, prices of non-residential properties are influenced by many factors, and I have previously cited some data, highlighting that the selling prices or rent indices of offices or retail shops have not dropped after the introduction of the DSD.

Chairman, as I pointed out a few days ago, the selling price of a certain shop premises in Kowloon City was over $70 million; even if the bank can provide 50% mortgage, the buyer still has to pay nearly $50 million including stamp duty. How can that be affordable to buyers?

Many people oppose a downward adjustment of the "curb" measures for they consider that the authorities' recent relaxation of tax exemption for people to purchase uncompleted flats for changing their existing flats have caused the property market to rebound. They thus request for more exemptions, so as to release the long-suppressed market for users who intend to change flats; and with an increased demand in properties, the price will naturally increase slightly. We should not regard such a reasonable phenomenon as a sign of revived speculation.

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Actually, we do not worry about price increases driven by the free market because the market will automatically make adjustments. What worries us is price changes resulting from the intervention in the market by administrative means, for we will not be able to conduct rational assessment on the basis of objective data.

Earlier, I pointed out time and again that the DSD would actually increase the operating costs of normal business activities. As the acquisition of non-residential properties requires the payment of heavy tax, most enterprises have thus been forced to rent properties, which has in turn pushed up the rental. However, we must note that the impacts of the DSD on business operations are not limited to paying more money for property acquisition or rental; even normal business activities such as investment or financing will be hampered because of reduced transactions, making normal business development and plans become uncertain. This is not conducive to Hong Kong in the long run because with stagnant business development of SMEs, the market will become more tilted. The so-called measures to "suppress demand" are deceiving in nature, silently eroding our competitiveness and affecting business environment. There is a saying that "sacrifices must be made for the sake of regulation." Nevertheless, I am afraid the sacrifice may be too great.

Chairman, I would like to mention in passing that, when I noticed the falling competitiveness ranking of Hong Kong in the past two years, I reminded the Financial Secretary by saying to him, "While you may say today that there are always ups and downs in our ranking, I am afraid that 10 years later, when the Financial Secretary finds that our ranking has fallen to the 30th or 40th place, or Hong Kong is not even on the list, we can no longer talk about 'ups and downs', for by that time Hong Kong will no longer be ranked as competitive".

At present, the Government often practises populism and it always intervenes in the market, such as the implementation of the "powdered formula restriction order". If this goes on, SMEs and micro-enterprises will be … I hope the Secretary can give the green light to this amendment, such that SMEs and micro-enterprises can acquire properties for business operation without having to pay expensive rents. They can look further ahead and make long-term plans, and need not have to sign a new lease once every three years. This would stifle business development, the same situation that the catering industry is currently facing.

Thank you, Chairman.

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CHAIRMAN (in Cantonese): Does any other Member wish to speak?

MR FREDERICK FUNG (in Cantonese): Chairman, when we first started to discuss this Bill, I had spoken and had expressed my views based on my understanding of the Bill and the definitions often mentioned by the Government. In introducing this Bill on the double stamp duty (DSD), the Government mainly seeks to combat speculation as the property market is overheated; in particular, there is hot money inflowing into Hong Kong and speculation is rampant. Apart from Hong Kong, these speculators also come from the Mainland and other countries.

Therefore, the objective of the DSD is to suppress the speculative sentiments, so that local people and other people can purchase residential units or shop premises for self-occupation, self-use or business operation. This debate focuses on shop premises rather than residential units. As the Government has so explicitly stated its fear of continued speculation, which may affect the local market for shop premises, we must draw a line. It is unreasonable for us to overkill or target all buyers, be they speculators or genuine business operators.

Certainly, it would be most satisfactory if there is a legislative means to distinguish between speculators and business operators. I think the amendment proposed by Mr Charles Peter MOK today on behalf of Mr Kenneth LEUNG may serve the purpose. The Government should not consider that all amendments proposed by us would convey a bad message to mislead the market. Our debate today will be reported in the press or on television tomorrow, and the market will be aware of the situation. In my view, the amendment proposed by Mr WU Chi-wai and the other amendments proposed explicitly request the Government to separately deal with people who purchase properties for self-use and business operation, so that they will not have to bear additional costs owing to the introduction of the DSD.

Chairman, as we all know, there are small shops on the streets in some older districts, such as Hung Hom, Kwun Tong, Wong Tai Sin, Tsuen Wan, Wan Chai and the Western District. These shops are small in size, ranging from only 100-odd sq ft the smallest to 400 to 500 sq ft the largest. These shops carry out different types of trading, such as traditional boutiques, Chinese herbal shops and herbal tea shops. These shops may not be able to keep abreast of the times; they may not look splendid, but they are after all small and medium enterprises 17092 LEGISLATIVE COUNCIL ─ 15 July 2014

(SMEs). We have always proposed measures to ensure the continued survival, if not development, of these enterprises and industries in various districts of the territory. The Government should not levy DSD on these enterprises; instead it should examine how to encourage these enterprises to remain in operation. At present, shops with better operating conditions will be asked to pay twice or thrice the rents right after the expiry of the lease. The rate of increase is much higher than that of residential units.

Thus, in order to improve the situation and avoid overkill, I support the amendment. The fact that a buyer uses the acquired property for conducting business for three years without conducting any transaction is a valid proof. The authorities will still levy duty on the buyer but the buyer can get a refund after three years if there is a solid proof. As the buyer will only be given a refund after the use of his acquired property for three years has been confirmed, I think this amendment is reasonable.

In addition, I think the DSD is only a temporary solution. To tackle the problem at root, I think two options may be considered. First, we have to consider when the United States will increase the interest rate. If the United States increases the interest rate at an earlier time, the property prices or the property market may have a slight downward adjustment, leading to lower demand. Yet, we do not know when the United States will increase the interest rate. Will there be an increase at the end of this year, early next year, or at an unknown time in the future? It seems that the increase will be postponed to a later time. Nothing is certain. Chairman, as I have often proposed at different panels of the Legislative Council, another approach we can adopt to tackle the problem at root is to develop land involving fewer disputes, so as to produce more residential units and shop premises, and the design of shop premises should cater for SMEs. The Government should avoid selling all shop premises to the Link in one go. For example, we have mentioned that we can make use of sites set aside for small houses as well as military sites. Let me reiterate, I am not saying that we should occupy the military sites, I am only proposing the exchange of land; we can even build the facilities required on lands in the New Territories in exchange for their military sites in the urban areas. We can also make use of sites of old public housing estates and sites for redevelopment, especially sites for redevelopment of old districts or brownfields within the flight paths. We really need to have sufficient land for housing construction. This is how we can tackle the problem at root.

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Chairman, though technically I agree to the Government's introduction of the DSD because it can suppress the speculative sentiment of some people, I have to emphasize again that this is not the way to tackle the problem at root. While supporting the DSD, I hope the Government would not victimize good people as good people should be rewarded. I think the Government should give those SMEs that are really operating and doing business in Hong Kong a way out. Even though the amounts involved may not be very large, the Government should try its best to help.

Thank you, Chairman.

MR JAMES TIEN (in Cantonese): Chairman, this amendment proposed by Mr Kenneth LEUNG or Mr Charles Peter MOK is about providing duty exemption for a Hong Kong incorporated company or an Hong Kong Permanent Resident (HKPR) if the non-residential properties acquired has continuously been used solely for the purpose of carrying on the trade, profession or business for not less than three years from the date the property is acquired.

Chairman, since the era, a very important component of Hong Kong's free economy has been the principle of "small government, big market", meaning that the Government should avoid as far as possible to intervene in the market. Given the fluctuations in the market, why should the Government incline to assisting buyers or sellers and teaching them how to invest? There may be losses or gains, which is a worldwide phenomenon, especially with regard to commercial property transactions. As regards residential units, it is often said that the Government must ensure that Hong Kong people can buy their own homes. This has been the common practice in a lot of countries. Perhaps it is more important to focus on residential units for the general public instead of luxurious units. Many countries and regions (including many Mainland cities) have this idea which is rather desirable.

At the business level, there are transactions among large foreign enterprises and large enterprises in Hong Kong, transactions among large enterprises and small enterprises in Hong Kong or among small enterprises in Hong Kong. Under the concept of "positive non-intervention" or "free market", the Government should not intervene in market operation. In my opinion, the message conveyed by all government policies in the past couple of years ― let 17094 LEGISLATIVE COUNCIL ─ 15 July 2014 me also use the word "message" ― the message conveyed to foreign investors and businessmen in Hong Kong is that the Government does not welcome making profits; instead it stresses on price stability.

As pointed out by a few Honourable colleagues, for prices to remain stable, especially the prices of commercial properties, the authorities have to set aside more land for sale. However, the Chief Executive is unwilling to do so. Soon after taking office, he stated that it was most important to construct public rental housing (PRH). Therefore, 60% of the land will now be used for constructing PRH while the remaining 40% will be used for constructing private residential units and other uses, such as shopping centres, office buildings and other non-residential properties. In light of such land use, supply will continue to be inadequate and property prices still remain high.

In a free market, enterprises which cannot afford the expensive rents in Hong Kong will retreat; or enterprises will move to other districts if they cannot afford the rents in Central. As mentioned above, Manulife (International) Limited purchased a commercial building in Kowloon Bay at billions of dollars and it paid a few hundred million dollars for tax. Also, the Citigroup has recently spent billions of dollars to purchase a commercial building in Kowloon Bay and it will deploy 4 000 employees to work there. The amount of stamp duty involved is considerable.

This amendment is about companies incorporated in Hong Kong, and the Hong Kong companies under the two large multinational corporations mentioned earlier are also incorporated in Hong Kong. Will a large multinational corporation sell the property a few years after the acquisition for speculative purpose? Will these two large multinational corporations, after holding the properties for a few years, sell some floors or turn the properties into small offices for making profits? I do not think so. If similar large multinational corporations will make long-term investments in Hong Kong, why do we not welcome them? These corporations regard Hong Kong as their "home" and they own Hong Kong properties for a long period of time; yet, we are now conveying the message that "you are not welcome".

I think the Government, especially the Policy Bureau under the leadership of Secretary Prof K C CHAN which has frequent dealings with large banks in the foreign financial sector, should have noted this point. The Chief Executive may LEGISLATIVE COUNCIL ─ 15 July 2014 17095 not have the vision because he only focuses on Hong Kong, or only on PRH, trying to gain public recognition. But we believe it is absolutely wrong to continue to convey such message.

Next, I would like to explain why the Liberal Party would vote against the Stamp Duty (Amendment) Bill 2013 (the Bill) and a number of amendments. A number of Members belonging to the Liberal Party have already spoken. We note that functional constituency Members ― let me first leave aside directly elected Members ― have already stated that, in the industries they represent, including the catering and retail industries, many owners of small and medium enterprises (SMEs) want to acquire properties. If it is required that the acquired properties must be for self-use … some of them are HKPRs and even if they are not HKPRs, the companies are incorporated in Hong Kong.

Concerning the Legislative Council Election in 2016, in respect of functional constituencies, apart from our constituency, there are also other general chambers of commerce, the industrial, insurance and surveyor sectors, and so on. Owners of companies have the right to vote, but not the employees. I am going to collate the speeches of Members and the voting results in this debate. During the election campaign, I will explain to various functional constituencies which Member will speak out for them and which will allow the Government to do whatever it likes. I will certainly show them the relevant information at that time. Members belonging to the Liberal Party will thus speak.

Speaking of SMEs and large enterprises, some Members have just mentioned that we should not help large enterprises and we should only help SMEs. We beg to differ. Why should we discriminate against large foreign enterprises operating in Hong Kong? Similarly, we should not discriminate against large local enterprises. Do we want these enterprises to withdraw their investments and transfer their funds to London, New York, Shanghai and Beijing and make investments there? If all enterprises in Hong Kong withdraw their investments, we have to worry about which enterprises will make investments in Hong Kong. Before 1997, the British-funded corporations owned many properties in Hong Kong; after the reunification, many Chinese-funded corporations acquired a lot of properties owned by the British-funded corporations. Do we want to see Chinese-funded corporations in Hong Kong selling all their properties to Mainland corporations such as Sinopec, the China National Petroleum Corporation or even the Bank of China? Do we want to see that all properties in Hong Kong are held by Mainland corporations? I believe 17096 LEGISLATIVE COUNCIL ─ 15 July 2014 many people do not want such a scenario. If that is the case, why should we discriminate against large enterprises in Hong Kong?

Furthermore, I would like to say that among the transactions related to non-residential properties, SMEs must take up the largest proportion. I believe the message that non-residential properties acquired for self-use but not for rental ― the properties purchased by the Citigroup and the Manulife (International) Limited are for self-use but not for rental ― will be exempted from double stamp duty is favourable to the long-term economic development of Hong Kong. I think we should convey this message to investors, instead of conveying the Government's recent message.

Chairman, sometimes, what the Government has done will give various political parties the opportunity to express their own views because they have different positions. For properties owned by companies incorporated in Hong Kong or owned by HKPRs for self-use but not for rental, the Bill introduced by the Government does not seek to exempt these properties from the duty (the duty rate has substantially increased from 4.25% to 8.5%). The prices of the properties concerned are definitely not lower than $20 million and they are expensive. In the course of this debate, members of the business sector can clearly identify which political party is truly willing to strive for the Government's exemption on behalf of SMEs in the Legislative Council. I am sure they will not forget that political party.

Thank you, Chairman.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

MR ALBERT CHAN (in Cantonese): Chairman, concerning People Power's stance, Mr CHAN Chi-chuen has already given a general explanation and an exposition just now. The Council of People Power held a meeting yesterday, during which we basically decided not to support Mr Kenneth LEUNG's amendment but we highly commended the philosophy and principles of his amendment. In the whole incident, as the Stamp Duty (Amendment) Bill 2013 (the Bill) was sloppily drafted by the Government, Members have tried by various means to rectify, plug or amend the mistakes or loopholes of the Bill during the scrutiny process. But apart from Mr WU Chi-wai's amendment, all LEGISLATIVE COUNCIL ─ 15 July 2014 17097 other Members' amendments were negatived, meaning that the Bill under discussion now is still rife with problems. I will reflect and discuss this point at the Third Reading of the Bill.

With regard to the amendments and the scrutiny of the Bills Committee over the past year, the low quality of the Government's governance is obvious. In handling such a significant and far-reaching issue, apart from us, the high-profile opposition party and radicals who always criticize Secretary Prof K C CHAN and have never had any good comments about him, even the Business and Professionals Alliance for Hong Kong, the Liberal Party and many Members with various professional backgrounds have seen the problems in connection with the Bill. Perhaps this is attributed to the fact that Secretary Prof K C CHAN is an academic and John TSANG, who has been the Financial Secretary for so long, tends to seek an easy life. We fail to see that in the past few years, he has the will to fight against the difficulties and meet the challenges faced by Hong Kong. He only carries out his work routinely, whiling away the days.

Ironically, we always talk about learning from Singapore, but years ago, we were in a leading position in Southeast Asia. Why do we have to learn from Singapore and Taiwan? With regard to the environmental issues, we have to visit Taiwan to learn from its experience. This is totally laughable. Hong Kong seems to be lagging way behind now. In future, we may even have to visit Thailand, the Philippines or Macao to learn from them. Let us look at the present environment in Hong Kong and the performance of the Government. Among the various terms of Government over the years, we have never seen such passiveness in addressing problems and such slackness in dealing with various issues as the incumbent Government.

As I have already mentioned, the Administration has changed its course in drafting papers. Now, only the merits are mentioned and all demerits are covered, and any issues that may lead to conflicts and disputes are not recorded …

CHAIRMAN (in Cantonese): Mr CHAN, you should speak on Mr Charles Peter MOK's amendment.

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MR ALBERT CHAN (in Cantonese): I understand. I am going to speak on his amendment; the present problem exactly reflects the aggravation of the Government's governance in various aspects, and because of that, Mr Kenneth LEUNG has to propose the amendment through Mr Charles Peter MOK today. If the Government had considered those problems, Members would not need to put forward amendments at this stage. If the Government could avoid overkilling ― that is the term used by many Members but I like to describe the situation as hitting the wrong targets ― when formulating the policy, Mr Kenneth LEUNG or Mr Charles Peter MOK would not have to waste so much time and many Members would not have to spend almost three hours to discuss the present amendment. If the loss is quantified by the number of cans of mud carp, Mr WONG Kwok-hing should take the lead to censure the Government for its sloppiness in drafting the Bill, which has cost the people of Hong Kong many cans of mud carp and cans of luncheon meat.

Chairman, let me talk about the present problem. Basically, when formulating the policy or the "double curbs" measures to prevent or control property speculation, the authorities must also consider how to ensure that the measures to control the surge in property prices will not hurt the genuine users, be they old shops based in Hong Kong or the newly emerged industries, or stifle the local economy. It is something that the authorities have to consider. After listening to the lobbying of Mr Kenneth LEUNG, especially his explanation about the impact on the local economy, People Power responded quickly by declaring that we would reconsider our stance, because the economies based in Hong Kong were faring badly in recent days. Dr CHIANG Lai-wan may not care too much about this but her father should well understand the reasons for a dwindling number of industries, small and medium enterprises (SMEs) and people with creative ideas in Hong Kong. How does this situation come about? The property prices play a very important part.

With the introduction of the "double curbs" measures, people have to pay a 4% additional stamp duty, which may amount to tens of thousands of dollars. The extra duty will stifle or impede investors or those who aspire to start up a business but have little capital. This factor should be considered by the Government. In controlling the rise of property prices, the Government does not intend to make these people suffer or stifle the local economy. While it has no such intension, its policy has led to such result. I wonder if the Secretary and his colleagues have ever thought about this problem when drawing up this policy. Being the Financial Secretary for so many years, "Moustache TSANG" should LEGISLATIVE COUNCIL ─ 15 July 2014 17099 have thought about this but he is too lazy to care. He spends his time playing with swords, drinking red wine and enjoying the carps. He has a very beautiful koi pond at his residence …

CHAIRMAN (in Cantonese): Mr CHAN, you have digressed.

MR ALBERT CHAN (in Cantonese): Chairman, I am now criticizing these officials for their overindulgence in various pleasures and they are totally indifferent to the special needs of the people referred to in Mr Kenneth LEUNG's amendment. Chairman, that is right. That may be the cause. We must invite these officials to stay overnight in some slum areas, work one or two days in the office of SMEs, help Mr Tommy CHEUNG wash dishes in restaurants or take up manual work in Mr Vincent FANG's factories to experience the hardships of front-line workers in these enterprises. Perhaps they will come to their senses after hearing the workers' criticisms against the Government. At present everyone in the bureaucratic system is flattering each other. None of them has conducted self-reflection.

Let me go back to this policy. Mr Kenneth LEUNG has pointed out that it is very important to allow Hong Kong people to buy shop premises for self-use. Self-use is very important. Let us look at the decade-old shops and shops with well-established names. The reason why they can weather various situations throughout all these years is that they run their business in their own property, no matter it is a big apparel manufacturing plant or a small pastry shop. Most of these businesses have been operated in premises owned by the owners over the years. Like some famous shops in Central, if the premises are not self-owned properties, many of them would not have weathered the financial crises and the upsurge of property prices in recent years, and would have long gone out of business. Hence, it is very important for business to have its own property.

Therefore, the intent of Mr Kenneth LEUNG's amendment is very good but many Members have pointed out its shortcomings. People Power reconsidered the issue at our Council meeting yesterday. After a thorough analysis of the details and scope of his amendment, especially the exemption granted to Hong Kong incorporated companies, we consider that the loopholes in this respect were too big. There are too many loopholes that can easily be exploited, such as a Hong Kong company may be manipulated by foreign capital or properties can 17100 LEGISLATIVE COUNCIL ─ 15 July 2014 change hands through trading of shares. Of course, the general intent of the amendment is right and worth supporting but since Mr Kenneth LEUNG has not considered thoroughly the scope of the Bill to prevent those who are not genuine users from exploiting the loopholes to secure the title of a property, it is obvious that there are insufficient protective measures. Hence, under the present circumstances, we cannot support this amendment.

Actually it was very painful for us to make this decision. After thorough discussions and studies, most of our members finally decided that in order to prevent any unnecessary fluctuations in the property market which may lead to speculations flaring up again after the passing of Mr Kenneth LEUNG's amendment … The possibility of such a crisis does exist and it is difficult for us to determine whether this will happen or not. Besides, even if Mr Kenneth LEUNG's amendment is passed, its impact on the overall operation of the whole property market is minimal. Let us look at the non-residential properties such as commercial buildings or factory buildings. We believe that only a few, perhaps not even 1%, of such premises are for self-use and will not be rented out within three years after acquisition. Hence, the amendment will have very little impact on the market. But the message conveyed may trigger speculative activities or someone would use this message to carry out speculations, thus creating a crisis.

Actually, the Individual Visit Scheme (IVS) has a biggest impact. If the Government had accepted People Power's proposal to impose an entry tax of $100 or $200, it might have a more positive effect on the property market and property prices would plunge immediately. To better control property prices, it might be more effective to restrict the number of IVS tourists than introduce the "double curbs" measures. To control property speculation, the best way is to introduce capital gains tax as proposed by many political parties, including People Power, years ago. This measure can truly curb property speculation and use the tax to control …

CHAIRMAN (in Cantonese): Mr CHAN, your speech has deviated from the amendment which is the subject of this joint debate.

MR ALBERT CHAN (in Cantonese): That is because we consider our proposal better than Mr Kenneth LEUNG's amendment. Should our proposal be adopted, we need not adopt the exemption proposed by Mr Kenneth LEUNG.

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Having considered all these problems, we certainly fully support granting SMEs tax exemptions in acquiring properties, but given that this amendment cannot guarantee that this will surely happen, and that it is rife with loopholes and the message conveyed will give rise to the speculation crisis, we have to apologize to Mr Kenneth LEUNG and Mr Charles Peter MOK for not being able to vote for the amendment owing to the above reasons, though we would very much like to support it.

This is the stance of People Power. We call upon the Government to learn from this hard lesson when formulating any policies in future, especially when preparing the next Policy Address and the Budget, and see how it can help SMEs in Hong Kong acquire their own properties for business operation and development. The Government should take the lead to consider some feasible means in respect of land, taxation, administrative and financial support, and get the basic work done.

Thank you, Chairman.

CHAIRMAN (in Cantonese): It is not possible to complete all the proceedings on this Bill before 10 pm tonight, but this meeting will only be adjourned after the proceedings on this Bill have been completed.

MR LEUNG KWOK-HUNG (in Cantonese): Chairman, we keep repeating the same argument. If LEUNG Chun-ying could prescribe the right remedy, we did not have to hold any discussion here. His remedy is to increase the trading cost by levying the ad valorem stamp duty or stamp duty to eliminate people's purchasing power within a short time. It is just that simple.

This is of course not the way to treat the symptoms because whether one speculates on property or purchase properties to earn rental income, there is a cost to pay. Concerning the profit, interest or rental, the ratios of the three cannot vary greatly; otherwise, a department will vanish. This is the meaning of the so-called market effect. In other words, if one earns more by letting out properties than running a company, everyone will let out their properties. However, this will not happen in the market unless the Government enforces by force, just like what Donald TSANG had done, and the nine measures introduced by TUNG Chee-hwa …

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CHAIRMAN (in Cantonese): Mr LEUNG, please discuss Mr Charles Peter MOK's amendment.

MR LEUNG KWOK-HUNG (in Cantonese): I understand, but I have to explain why I do not support Mr Charles Peter MOK's amendment. The reason is that this case is absurd. I am not saying he is absurd; but the Government is. He tries to get to the root of the matter. Is this the way to get to the root of the matter? Is there another saying? Buddy, it is of course hard to get to the root of the matter because he will be dead.

A bubble has been formed in our community and LEUNG Chun-ying bursts it. He also played a role as he worked for Jones Lang LaSalle …

CHAIRMAN (in Cantonese): Mr LEUNG, you have digressed.

MR LEUNG KWOK-HUNG (in Cantonese): Is this a digression?

CHAIRMAN (in Cantonese): Please discuss Mr Charles Peter MOK's amendment.

MR LEUNG KWOK-HUNG (in Cantonese): He proposes a tax refund for non-residential properties, does he not? This needs to be justified. Why is there no tax refund for residential properties? Why are residential properties not exempted? Therefore I think he has drunk something. I am tone-deaf. One cannot drink poison to quench his thirst.

My view is that I agree to the policy objective of LEUNG Chun-ying. The purpose of the "curb" measures is to bring down property prices, so that ordinary people in Hong Kong can afford a reasonable home, whether by purchasing a flat or renting a flat. Of course, whether such homes are provided in the form of public housing or Home Ownership Scheme flats is another issue. If so, I think he has prescribed the wrong remedy. Right?

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Mr Charles Peter MOK has also made the same mistake. Talking about incorporated companies, I do not have an incorporated company. If you purchase a property in the name of an incorporated company, you may claim that the incorporated company buys the property for self-use. But should a distinction be made? Chairman, you also remember the case of MAK Chai-kwong. Civil servants exchanged home ownership with each other and then rented the unit which was in fact his own property for self-occupation. These all happened under the nose of the Government. Do you think businessmen are shrewder than MAK Chai-kwong? MAK Chai-kwong got busted but businessmen did not. It is known to all that in terms of shrewdness and recklessness, businessmen excel. Civil servants could exploit the loophole and used the money provided for flat rental to pay mortgage, and then exchanged home ownership. If such circumstances could happen, does Mr Kenneth LEUNG have the wisdom to solve the problem? This problem can hardly be solved.

Another point is that no penalty is imposed. If one risks danger in desperation, what will be the penalty imposed? While we sympathize with them and allow them to get the benefits they think they deserve, if they do not do so … (Someone in their seats said that the time was up) Is the time up? Chairman, someone said my time is up. I cannot support his proposal. In my view, it is a waste of time for Mr Kenneth LEUNG to propose one-off measure involving profiteering or real estates, including capital gains tax, vacant property tax or progressive profits tax in connection with profits, Government rent or interest income.

Chairman, this is just like the "One Whip Law" in the Ming Dynasty, right? When you cannot apply one law to all items, you use a whip to solve all the problems. Apart from the "One Whip Law", there was also the "Fish-scale Register". In the Ming Dynasty, the authorities identified all bogus household registrations by means of the fish-scale register. As there are loopholes in the proposal put forward by Mr Kenneth LEUNG which people can exploit, sorry, I have to apply mercy amid doubts and cannot help Mr Kenneth LEUNG.

Originally, I highly respect Mr Charles Peter MOK, but unfortunately, I oppose his proposal concerning the "Trauma" and Technology Bureau. As regards this amendment, it has nothing to do with him but I have to oppose him again. Chairman, I will stop now. I cannot support Mr Kenneth LEUNG's 17104 LEGISLATIVE COUNCIL ─ 15 July 2014 proposal and I hope that he will forgive me because there is no way I can agree …

(Noises came out from the Chamber)

Oh yes, I cannot forgive Dr LAM Tai-fai.

(Mr LEUNG Kwok-hung remained standing after he had finished speaking)

CHAIRMAN (in Cantonese): Mr LEUNG, you have finished speaking. Please sit down.

MR LEUNG KWOK-HUNG (in Cantonese): Oh, right. Chairman, you are so brilliant.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(Mr Paul TSE raised his hand in indication)

CHAIRMAN (in Cantonese): Mr Paul TSE, please speak. Will Members who wish to speak please press the "Request to speak" button.

MR PAUL TSE (in Cantonese): Chairman, I always advocate that the Government should use tax measures to promote economic growth and the development of various industries and trades in Hong Kong where necessary. I am afraid this time … perhaps because the Government has always claimed that Hong Kong is a free market and the policy of "big market, small government" should be adhered to, it will not assist certain industry or trade by fiscal or government policies. However, the current approach can be considered double jeopardy. It is still acceptable if the Government does nothing but once it takes actions, its measures hurt the local market, jeopardize all economic activities in Hong Kong and dampen overseas investors' willingness to invest here. The approach it takes, the so-called taxation policy, is totally disappointing and I feel sad for the demise of Hong Kong's excellent tradition over the years.

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Chairman, the so-called "curb" measure this time around is the same as those proposed last time. The Government keeps repeating the few so-called principles, namely, first, to curb speculation; second, to cool down the overheated property market, especially the residential property market; third, to address the home ownership needs of local residents; and fourth, that is related to this amendment, to go all out to curb property speculation, sparing none, not even the non-residential property market for fear that after the overheated property speculation is cooled down, hot money will flow to the non-residential property market. A colleague has asked earlier that if that is the case, should "curb" measures be implemented in the stock market to prevent money flowing to the stock market? Or should measures be implemented to curb investments in antiques, paintings, and so on, hence forcing the money to go anywhere but to overseas countries?

Perhaps, I will first talk about the repeated attempts of the Government … and the reasons why I do not support this amendment. First, I worry that the amendment is sloppily drafted and there are too many loopholes, which may give rise to many unknown after-effects if it is passed. As a matter of fact, whether the unknown after-effects are caused by the Bill or by the amendment, many of them have not emerged yet. Even the definition of non-residential property is still controversial. Many disputes regarding the definition may emerge and incidents involving victimizing the innocent may occur. We are uncertain at this moment.

Regrettably, a fellow member of the legal profession, solicitor Terry YEUNG, provided information to the Bills Committee only after the completion of its scrutiny work to indicate how the current loose definitions may lead to problems of victimizing the innocent. I find Mr YEUNG's arguments very convincing. Even if the Government is able to secure sufficient votes to endorse the "curb" measures, it should immediately clarify the definitions and narrow down their scope so as to avoid the after-effects.

Chairman, concerning the sloppily drafted amendment, it seems to me that there is indeed much room for improvement. As a matter of fact, if we pay attention to the commencement date in the amendment, we will find that the commencement date is three years from now. Even if there are areas of sloppiness, after the enactment of the principal legislation, some minor pieces of legislation can be enacted later to define some fine points relating to the relevant 17106 LEGISLATIVE COUNCIL ─ 15 July 2014 policy to prevent loopholes. Three years is a long period of time during which the Government can fine tune the exemption in the amendment. If that is the sole reason to oppose this amendment, the opponents should note that the Government is absolutely capable of formulating minor legislation to fine tune the relevant measures, so that it can effectively plug the loopholes under the major principle. The Government is duty-bound to do so. I find that not many people have noticed this point. If the Government accepts this direction in principle and only worries that the amendment is sloppily drafted, it can do so to prevent the shortcomings.

Chairman, the second reason is that, oddly enough, Mr Tony TSE has also mentioned this point, some people in the commercial sector would very often hold a certain property in the name of Company A and do business in the name of Company B. There are indeed such cases. But I am afraid his view is not well thought out, as in the case of the wording of the amendment. The present amendment only applies to one company only, either Company A or Company B but not both Companies A and B holding the property at the same time. Only when a company holds a property and does business in the same name can apply for exemption three years later. This point, I believe, can address Mr Tony TSE's concern.

In lobbying, government officials said that as a company can transfer shares for beneficial interest, big loopholes may arise. It is true that in doing business, any company, whether it is incorporated in Hong Kong or in overseas countries, may do so. But according to my experience, if the Government intends to combat against speculation, the speculative activities would usually be carried out by some "clean" companies to acquire residential, commercial or non-residential properties. In other words, if someone uses Company A to hold a property, he will not run the business in the name of Company A. And if things turn out to be a mess three years later, he will sell the property held by Company A, not the property but the shares of Company A.

I dare not say that there are no such cases in the real world, but most of the investors or buyers are not willing to bear the consequences. As Company A is not purely a property holding company and after operating for three years, it will have many interrelated accounts and it is hard to clarify, within a short time, the responsibilities to be undertaken. Buyers will not be willing to bear any of these responsibilities. Hence, such fear and worries are detached from reality. I LEGISLATIVE COUNCIL ─ 15 July 2014 17107 believe that anyone, including Secretary Prof K C CHAN who is a professor of economics, should well understand, or if he has experience in the trading operation of the market, he should understand that this is not really a matter of concern.

Chairman, thirdly, the reason that the Inland Revenue Department will have to deploy more manpower to process the applications cannot be accepted. This reason is even more absurd because it does not take too much time to process such applications. Another point which may indirectly address the last point raised by Mr LEUNG Kwok-hung just now is about the lack of penalty and how the case will be dealt with if fraud is involved. During the discussion of the Bills Committee, this question had been raised many times and it was also discussed during the scrutiny of other "curbs" measures. Such worries can be readily addressed by adopting the approach of oath-taking which has legal effect and consequence. In a common law country or jurisdiction, one's credibility is of paramount importance. For simple matters, such as application for scholarship, the Comprehensive Social Security Allowance or public housing, the applicant is required to take an oath, which is simple enough. Of course, we also have to consider that this involves an honour system which assumes that everyone is honest. If anyone compromises his integrity, the consequence will be very serious. Therefore, in a common law country or jurisdiction, the consequence of making false oath is even more serious than in other neighbouring places … Perhaps as there is much less trust among people in those places, their system is completely different from us. Many people, especially those from the Mainland, do not understand why so many matters can be dealt with by the approach of oath-taking in Hong Kong. That is because we basically trust people and the consequence of breaching good faith or trust is very serious and is punishable by imprisonment. The penalty imposed is even more serious than assault or a criminal offence in general because in a common law jurisdiction, making a false oath is a very serious criminal offence. Therefore, it should not pose a big problem to law enforcement and monitoring.

Based on the above three points, I am afraid I cannot accept the Government's justifications in opposing this amendment and its incessant efforts in lobbying all colleagues to oppose it.

Chairman, more important still, as I said at the outset, what is the policy objective? Regrettably, the present community is seriously divided, the main 17108 LEGISLATIVE COUNCIL ─ 15 July 2014 cause is certainly the political division, making it increasingly difficult for people who have independent thinking and are impartial to have a foothold. This phenomenon not only arises in the debate of political issues, but also in the debate of economic issues. The incumbent leaders of the SAR Government seem to be at odds with the values on which Hong Kong's success has all along depended on; they keep introducing policies to destruct such foundations and pillars. If the situation persists, I am afraid the problem of sky-high property prices that we are concerned about will turn for the worse, or has already turned for the worse. Of course, we cannot just look at the situation in Hong Kong, we also have to consider the situation in the international community. For example, in the United States, its new economic arrangements have already led to the withdrawal of investments. In the Mainland, the new measures introduced by the new governing team, including combat against corruption and tightening of many polices, have crumbled the property market. Moreover, the number of Mainlanders coming to invest in Hong Kong is also on the decrease. The Hong Kong economy is already in deep water. What we should do now is not to find ways to suppress the property prices but to maintain them so as to avoid a premature economic downturn. However, to satisfy populism or implement some slogan-like political policies, the incumbent Government decides to suppress property developers and property hegemony. I am afraid the many actions taken by the Government have totally destroyed the cornerstone of the free market in Hong Kong.

Chairman, I believe you have driven a car before. When the car goes too fast, if you slam on the brake just like an inexperienced driver, accidents are prone to happen because the car is stopped too abruptly. On the contrary, for an experienced driver, he will switch the fourth gear to the third gear, gradually reduce the car speed and then apply the brake slowly. For those who are not so skillful, they should at least apply the brake a little and then release it a little to bring the car to a stop. This is what Singapore is doing, but in Hong Kong, the Government wants to slam the brake to stop the car at once. Let us wait and see, if the market is crushed, the Government may have to introduce the "new nine measures" to save the market. The alternate policies to crush and save the market have baffled people of Hong Kong, and challenged the values on which Hong Kong's success depends on. Frankly, for the middle class in Hong Kong, their first wish is to have a roof over their head; and then, many hope to acquire a small shop or an office to run their business, so that they do not have to live under the constant threat of rent increase or duress by landlords. These are the humble LEGISLATIVE COUNCIL ─ 15 July 2014 17109 requests and aspirations of the middle class or those who hold a few properties in Hong Kong. In handling the present issue, the Government adopts the same approach as handling a political issue, thereby forcing people to go to two extremes: either to cry out against property hegemony, or to think of emigrating to other places.

I will stop speaking in this session. Thank you, Chairman.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, concerning the amendment proposed by Mr Charles Peter MOK on behalf of Mr Kenneth LEUNG to provide a refund mechanism of the doubled ad valorem stamp duty (AVD) for a Hong Kong incorporated company or a Hong Kong Permanent Resident (HKPR), I do appreciate the Member's intention of making this proposal but I cannot agree to his amendment. During the debate on Mr Abraham SHEK's amendment earlier, I have already expounded the justifications of the Government for not providing any kinds of exemption for non-residential properties. At this point, I will not spend time on explaining why the measure should cover non-residential properties; instead, I will point out directly the shortcomings of the refund mechanism proposed by Mr MOK and I hope Members will make a clear and correct analysis.

I know that certain Members, especially those from the commercial sector, oppose the inclusion of non-residential properties in the relevant measure, and they thus try to find means to provide exemption. The amendment to exempt all non-residential properties was negatived earlier, and this refund mechanism aims at providing exemption to those who acquire non-residential properties for self-use. I hope Members would consider carefully if they wish to see the following scenario: if buyers can get a refund of the doubled AVD after holding a non-residential property for a certain period of time, will the non-residential property market resume its exuberant state, leading to an upsurge of the properties prices that has somehow slowed down temporarily?

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The refund arrangement is tantamount to exempting all Hong Kong incorporated companies, including charitable institutions established in the form of companies, or HKPRs from paying the doubled AVD on the non-residential properties acquired, which is inconsistent with the Government's policy objective of implementing the demand-side management measures.

As regards the market effect, the current property market is still unstable and very sensitive. The amendment will send a message to the market that non-residential properties can be "thawed", thus stimulating the demand for non-residential properties, which in turn erodes the effect of the demand-side management measure.

Although the amendment restricts the eligibility of the applicant, that is, the applicant must be either a Hong Kong incorporated company or a HKPR, the proposed threshold is not high. Hong Kong is famous for its business facilitating environment and it is very easy to set up a company here. Besides, after a company has acquired a non-residential property, anyone including an overseas company or a non-HKPR can indirectly assume the ownership of the property concerned held by that Hong Kong incorporated company by transferring the company's shares, and then three years later when the relevant period expires, application for tax refund can be made. In this way, the payment of the doubled AVD can be evaded, rendering the measure totally ineffective.

Furthermore, it should be pointed out that the amendment does not stipulate that the ownership right of the non-residential property cannot be transferred within the three-year relevant period. In other words, even if the applicant has sold the relevant property, as long as he meets another condition for tax refund, that is, he has continuously used the relevant property solely for the purpose of carrying on a trade, profession or business in Hong Kong for not less than three years, he is still eligible for the refund. Is this not against the principle of the policy and the measure?

Another condition for tax refund mentioned just now is the conditions of self-use. I wish to point out that Mr MOK's present amendment has not specified who bears the burden of proof and the legal basis to require an applicant to produce proof or even make a legal statement. I believe that Members cannot ignore this loophole in law. This grey area cannot be addressed solely by the enforcement guidelines normally issued by the Inland Revenue Department (IRD) as the guidelines have no legal effect and hence open to legal challenge.

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I believe Members can imagine that it is difficult for the IRD to determine whether a non-residential property is used for carrying on a business, profession or trade, or whether the operation that takes place in the property involves speculative activities, let alone determine whether a certain Hong Kong incorporated company or a HKPR uses the subject property solely for the purpose of carrying on a trade, profession or business in Hong Kong, or whether the non-residential property concerned is being used continuously. The current stamp duty system only levies stamp duty according to the nature of the properties covered by the property transfer instruments, without giving consideration to how the buyer would actually use the property in the years after the acquisition. In real operation, there are bound to be disputes, such as if the non-residential property in question is vacant during the relevant period, how can we determine the actual use of the property? Besides, although Mr MOK's amendment stipulates that the trade or business does not include letting or sub-letting of the subject non-residential property, the Stamp Duty Ordinance does not require a written tenancy agreement. How then can the IRD investigate whether the subject non-residential property has actually been let or sub-let? To introduce an inspection system for a special measure implemented at a special time will lead to a fundamental change to the stamp duty system, hence is it proportionate to take such an action that involves so many people and resources to tackle the present problem?

Chairman, we understand that the doubled AVD has impact on the industrial and commercial enterprises, but as a volatile property market will affect the macro economy and financial stability, the Government needs to tackle the problem from the demand-side management to control the exuberance of the non-residential property market. We believe that local enterprises and foreign companies will ultimately benefit from a business environment in which the property market develops steadily. Fortunately, with the implementation of the measures, the increase of prices and rents of non-residential properties has slowed down effectively. I would like to ask whether Members wish to see the price increase of the non-residential property picks up speed again.

I urge Members to make an objective analysis on the basis of my arguments presented just now and make a wise decision and vote against Mr MOK's amendment.

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MR CHARLES PETER MOK (in Cantonese): Chairman, I have just now spoken once, hoping that Members who oppose the amendment could have listened to my argument at an earlier time and change their mind. However, I know that I may not be successful. Many people have not returned to the Chamber to listen to me, I hope they would hear what I will say upstairs.

Let me reiterate, this amendment has imposed restrictions, it is justifiable and reasonable, and conforms to the principle of fairness. It aims to avoid indiscriminately victimizing the innocent instead of relaxing the "curb" measures for the sake of downward adjustment. Concerning the "message" that people often talk about, I think it is a means to divert attention. Some people propose certain ways to adjust the "curb" measures downward, and such actions are said to be conveying a wrong message; some propose ways to adjust the "curb" measures upward, and such actions are said to disrupt the integrity of the measure. In my view, the Government seeks to maintain its prestige and power, even at the expense of victimizing the innocent. We have also repeatedly discussed whether my amendment can be implemented, and we still maintain that it is practical and enforceable. Logically speaking, many Members have supported amendments to avoid overkilling, as in the case of the Tenants Purchase Scheme, the same principle also applies. We just want to make it fair. Members support the amendment to protect residents of the public rental housing so that they would not be victimized indiscriminately; yet when it comes to small and medium enterprises (SMEs), Members show no concern because SMEs do business.

Let me briefly respond to the arguments of several Members. First of all, regarding the examples given by Mr CHUNG Kwok-pan, I agree that many manufacturers in the commercial and industrial sector do want to move their operation back to Hong Kong; especially owners of small factories engaging in high-tech industries, they are anxious to move back. When I discussed with Mr Albert CHAN about the Innovation and Technology Bureau, he queried the purpose for conducting scientific research as all factories had been relocated to the Mainland. He was wrong, many factory owners are anxious to move back to Hong Kong. But if the policy is not conducive, that is, if our amendment cannot be passed, they have to consider twice.

Mr Tony TSE has also raised some queries, but I am afraid that he has some misunderstandings, such as the issue on sub-letting. From the outset, we said that sub-letting, whether whole or part, was not allowed. I wonder why he LEGISLATIVE COUNCIL ─ 15 July 2014 17113 mentioned sub-letting again and brought up the problem about Company A and Company B. Actually, as mentioned by Mr Paul TSE just now, it does not matter whether it is Company A or Company B or what the relationship between these two companies is, the prime concern is that it is actually carrying on a trade, profession or business. If it is running a business, who cares that it operates under the names of 10 companies. What really matters is that it is genuinely doing business in Hong Kong and it pays tax, employs workers and is contributing to our economy.

Mr CHAN Chi-chuen has just now come up with a new reason to oppose my amendment, this is, a Hong Kong company may also include a company incorporated in Hong Kong with foreign capital. Of course, I am happy to learn that Mr Albert CHAN supports local SMEs in acquiring their own properties. However, why should we be so anxious whether the company concerned is a Hong Kong company or a foreign company incorporated in Hong Kong? I also find the argument of the Secretary interesting. He just said that Hong Kong is famous for its environment to facilitate business operation as companies can easily be incorporated in Hong Kong. But since it is so easy for companies to be incorporated in Hong Kong, regulation is not possible and companies with foreign capital may take advantage of us. What kind of mentality is this? Supposedly, this should be our advantage and there is no reason why it has now turned into our disadvantage. With officials having this mentality, no wonder why our global ranking in economic freedom continues to fall. I wonder why the incumbent Government thinks in this way.

Hence, the restriction imposed by our amendment is to ensure that a Hong Kong incorporated company, whether it is with foreign capital or not, will employ workers and really do business. It does not matter whether it is a big company, like the example just cited, which has bought a whole block and sub-letting is not allowed; or a small company that buys a small office or shop, it is still acceptable so long as it conducts business. For a company that buys a 20-storey block, is it possible that it only employs three workers? Hence, we should never confuse this amendment with the policy of "Hong Kong property for Hong Kong residents" with regard to residential units. Concerning the policy of "Hong Kong property for Hong Kong residents", Hong Kong people opine that they have the right to own a home. OK, this is their right. However, Hong Kong companies also have this right because it is incorporated in Hong Kong and it also invests and does business in Hong Kong. When it conducts business, it will hire workers, right? This is the only thing that matters. Why should you be so 17114 LEGISLATIVE COUNCIL ─ 15 July 2014 mean? A company may not be a Hong Kong company. It may be a foreign company with foreign investments or even with Mainland investments but that is not our concern.

From another perspective, for some foreign companies, such as the big companies cited just now, they do not have any problems to pay tax amounting to tens of millions of dollars. On the contrary, local SMEs may have problems if they are required to pay additional tax amounting to several hundred thousand dollars, and it is unfair to ask them to do so. That is why I have to point this out. Hence, it does not matter whether a company is incorporated in Hong Kong or is invested by Hong Kong people, the most important factor is that it is a genuine user of the property acquired.

Mr CHAN Chi-chuen has also raised a subjective view just now. He did not encourage those who start up a business to buy their own premises. I think that is his subjective view. Buyers or business operators should know best what to do. Mr CHAN also mentioned about the transfer of shares of a company. Concerning this point, my answer is the same: it does not matter whether the shares of a company are transferred as the transfer of company shares is very often regarded as a normal transaction. What matters most is that the company continues to carry on business. If a company carries on another business or discontinues with the business within three years, it will not get the tax refund three years later, disregarding whether its shares have been transferred or not. It is just that simple. All the requirements and restrictions have been listed out in the amendment. As regards this point, I do not understand why the Secretary says that it violates against the policy objective. To me, it only violates against the Government's political objective.

Mr CHAN Kin-por said that our amendment was sloppily drafted. I can of course shift the blame onto Mr Kenneth LEUNG as he is the one who drafts the amendment. However, will Mr CHAN please explain how the amendment is sloppily drafted. He has not shed any light whatsoever on why he considered the amendment was sloppily drafted. Therefore, it immediately comes to my mind that the Government is sloppy in the first place. Many colleagues, including Mr Albert CHAN, have said that should the entire Amendment Bill submitted to the Legislative Council was not so sloppily drafted, we would not have to propose so many amendments and the Bills Committee would not have to spend so much time discussing. I have lost count how many meetings we had held.

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I have just reported to Mr Kenneth LEUNG the progress of the discussion and he has sent me a message via WhatsApp, saying that if we have to tighten the legislation in question so that our amendment can be passed, the real users will not be benefited. I make this comment on behalf of Mr Kenneth LEUNG. If the various provisions are tightened, it will just be the same as the Government's original version. My intention is to help others get the benefit. The amendment is not sloppy; it intends to slacken the relevant legislation to create a reasonable and fair environment. Hence, please note that the amendment is not sloppily drafted, for if the legislation is too stringent, we cannot help people, and that is not the result we want.

I thank Mr Tommy CHEUNG for pointing out just now that this amendment was similar to the laws in Singapore. If other places can make it, I do not understand why Hong Kong cannot. Mr Albert CHAN also mentioned that the measure did not victimize the innocent mistakenly, but victimize the innocent indiscriminately. Since he used the words victimize the innocent indiscriminately, I hope that he will change his mind. If this amendment cannot be passed, the authorities will keep on victimizing the innocent indiscriminately. If "Hulk" supports us, the pain may be lessened.

As regards the view that this amendment has no effect on property prices ― I hope I have not misinterpreted ― but the message conveyed is a matter of concern. I do not exactly know what this is about. As I have always said, the message only distracts people's attention. If a wrong message is conveyed but it has no effect, meaning that nothing happens, everyone can feel at ease to give a way out for SMEs.

Finally, the Secretary has pointed out some shortcomings in the tax refund mechanism proposed in our amendment. However, I wish to point out that we do not only target companies incorporated, but companies that carry on business. But the Secretary did not highlight this point and I find it baffling that he still holds such a view. Mr Paul TSE has also clearly pointed out the three-year period. Within the three-year period, the people concerned will not ask the IRD for a tax refund; hence at least we have three years. However, the Government said that the IRD would not be able to formulate guidelines, code of practice and oath-taking proceedings in three years' time. If the IRD fails to make any accomplishment in three years, I wonder what the Government is doing or what it can do. How come the IRD cannot accomplish these tasks? If Singapore can do so, why can't we? The problem is that the Government does not want to accomplish these tasks, and hence says that it is not possible to accomplish these 17116 LEGISLATIVE COUNCIL ─ 15 July 2014 tasks. If the Government is willing to take up these tasks, there will not be any problem.

As regards the proof, I do not consider it a grey area. It is possible for the IRD to formulate the relevant requirements. We really hope that the innocent will not be victimized. I also hope that the Administration will stop finding excuses, simply for the sake of maintaining the so-called policy integrity or political integrity. Thank you, Chairman.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the amendment moved by Mr Charles Peter MOK, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr LEUNG Kwok-hung rose to claim a division.

CHAIRMAN (in Cantonese): Mr LEUNG Kwok-hung has claimed a division. The division bell will ring for five minutes.

MR LEUNG KWOK-HUNG (in Cantonese): Do you have the authority to extend the meeting? Do you have such authority? Do you need our consent? That is, after you propose to extend the meeting, if we say we do not mind, does that mean you have asked if any Member wishes to speak; and if no Member wishes to speak, the Committee will proceed to vote. Will this be the case?

CHAIRMAN (in Cantonese): In accordance with the Basic Law and the Rules of Procedure, I am empowered to decide how to chair the meeting, the items on the agenda and the duration of the meeting. However, if any Member strongly LEGISLATIVE COUNCIL ─ 15 July 2014 17117 requests the Committee to stop scrutinizing this Bill and adjourn the meeting immediately, I am also obliged to listen to such views.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes.

(Mr Gary FAN stood up)

CHAIRMAN (in Cantonese): Mr Gary FAN, what is your point?

MR GARY FAN (in Cantonese): Chairman, I beg your pardon. I cast the wrong vote. I meant to vote in favour of the amendment.

CHAIRMAN (in Cantonese): What did you say? Please speak up.

MR GARY FAN (in Cantonese): I meant to vote in favour of the amendment but I pressed the red button instead.

CHAIRMAN (in Cantonese): Mr Gary FAN meant to vote in favour of the amendment. The Clerk will mark it down. Are there other Members who have cast the wrong vote?

If there are no queries, voting shall now stop and the result will be displayed.

Functional Constituencies:

Mr Albert HO, Mr James TO, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr Vincent FANG, Dr LAM Tai-fai, Mr Frankie YICK, Mr Charles Peter MOK, Mr Dennis KWOK, Mr IP Kin-yuen, Ir Dr LO Wai-kwok and Mr CHUNG Kwok-pan voted for the amendment.

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Prof Joseph LEE, Mr WONG Ting-kwong, Ms Starry LEE, Mr CHEUNG Kwok-che, Mr NG Leung-sing, Mr Steven HO, Mr YIU Si-wing, Miss CHAN Yuen-han, Mr KWOK Wai-keung, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu and Mr Tony TSE voted against the amendment.

Mr CHAN Kin-por abstained.

Geographical Constituencies:

Ms Emily LAU, Mr Paul TSE, Mr Alan LEONG, Ms Claudia MO, Mr James TIEN, Mr WU Chi-wai, Mr Gary FAN, Dr Kenneth CHAN, Dr KWOK Ka-ki, Mr SIN Chung-kai and Dr Helena WONG voted for the amendment.

Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Mr TAM Yiu-chung, Mr WONG Kwok-hing, Ms Cyd HO, Mr CHAN Hak-kan, Mr WONG Kwok-kin, Mrs Regina IP, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr WONG Yuk-man, Mr Michael TIEN, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Mr LEUNG Che-cheung, Miss Alice MAK, Dr Fernando CHEUNG, Dr Elizabeth QUAT, Dr CHIANG Lai-wan and Mr Christopher CHUNG voted against the amendment.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 27 were present, 13 were in favour of the amendment, 13 against it and one abstained; while among the Members returned by geographical constituencies through direct elections, 33 were present, 11 were in favour of the amendment and 21 against it. Since the question was not agreed by a majority of each of the two groups of Members present, he therefore declared that the amendment was negatived.

CHAIRMAN (in Cantonese): Mr James TO has given notice to move his fifth Amendment as set out in Appendix IA to the Script to amend clauses 18 and 24.

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The Secretary for Financial Services and the Treasury has also given notice to move his tenth amendment as set out in Appendix IA to the Script to amend clause 24.

Mr James TO's amendment concerns the exemption of charitable institution or trust of a public character from the doubled ad valorem stamp duty and the Secretary's amendment aims at amending section 24 in correspondence with the new provisions proposed to be added to the Bill.

CHAIRMAN (in Cantonese): Committee will first vote on Mr James TO's fifth amendment.

Members may now proceed to a joint debate on the relevant parts of the original clauses, the abovementioned amendments to them and the proposed new clauses. This is the tenth joint debate. I would first invite Mr James TO to speak and move this amendment.

MR JAMES TO (in Cantonese): Chairman, I move my fifth amendment as set out in Appendix IA to the Script to further amend clauses 18 and 24.

Chairman, do we all feel relieved? I move this amendment because I also think that we should not stop people or institutions from acquiring non-residential or residential properties when necessary to carry on normal economic and normal social activities. Take for example, certain charitable institutions as defined under section 88 of the Inland Revenue Ordinance (licence 88). As we all know, these institutions are rigorously regulated. They include social service institutions and religious institutions such as churches. These institutions may decide to acquire properties at this time owing to their normal needs, such as expansion of services or the need for a larger meeting venue as a result of, say, congregational growth, despite the Government's advice that careful consideration should be made with regard to the high market prices. However, as such institutions do not acquire properties for speculative purposes but for normal and self-use over an extended period of time, they may take the risk of falling property prices and decide to acquire properties at this time for conducting normal activities. Under such circumstances, I think the Government should not levy double stamp duty.

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Chairman, first, these charitable institutions are under rigorous regulation; second, even in the worst case scenario, the Government opines that the need to acquire a property is for investment purpose ― I only assume there is such a possibility ― even if the charitable institutions invest for profits, they are subject to the regulation of their respective constitutional document and the "licence 88", that is, they must plough back all investment proceeds into activities of a charity nature. Hence, I think we cannot suppress their needs in this respect at this time; neither should we treat them as one of the targets in our combat against speculative activities.

Yesterday morning, a director of a certain social service institution called up the radio station to lodge complaints. Owing to the Government's enhanced efforts in poverty alleviation and caring for the elderly and the underprivileged, all charitable institutions, including those directly subsidized by the Government or financed by the Community Care Fund, Beat Drugs Fund or the like, have to identify venues to expand their services. Of course, some may suggest that these institutions may rent instead of acquire premises since the Government wants to suppress demand at this time. They can always do so. But at the same time, we should also respect the need of these institutions to acquire properties for the provision or extension of services as requested by the Government. I see no reason why the Government should discourage the acquisition of properties at this time from such a perspective.

Of course, the Government may say, how come these institutions refuse to rent premises and still want to acquire properties at a time when the Government hopes that people will stop acquiring properties; and even if they have such needs, they should hold off for the time being. Why can't this be done? If an institution insists on acquiring properties, the Government would have no choice but to suppress such need. If the institution insists on acquiring properties, it has to raise some more money to pay the tax. I understand the rationale of the Government, but come to think about it, is it necessary to do so at this time? Take a church as an example. Since members of the congregation have already donated so much to acquire a new site, should we ask the congregation to donate more? We must bear in mind that since the banks are tightening their credit, the church, in acquiring a commercial unit for expansion, has to pay more than 30%, maybe 40% or even 50%, of the property price. Please note that it takes a long time for the church to raise the money. Where are the difficulties? In the case of a church, after members have said their prayers and set a target, they will make contributions out of love. It takes a long time before the target is met, and some LEGISLATIVE COUNCIL ─ 15 July 2014 17121 members would make contributions by instalments. When the church has raised sufficient funds and found a suitable site, the Government suddenly implements this policy, levying an additional 5% tax. The church may have to postpone the plan due to this additional 5% tax. The problem does not only relate to the postponement of the plan, the desirable site may no longer be available for sale when the church is ready to acquire the property later. As there are not many sites in the market suitable for use by a church, the choice is very limited. Sometimes a church has to spend a long time searching for a suitable site but in vain. This is really sad.

The example I have cited is by no means an exaggerated or extreme case, nor is it a rare case. It is truly not easy for a social service institution or a church to find a venue of the right size and location. If they can identify a suitable venue and have also raised sufficient funds for acquisition, it is unfair to levy an additional tax of a few percentage points on them.

As a matter of fact, during the scrutiny of the Buyer's Stamp Duty under the Stamp Duty (Amendment) Bill 2012, the Hong Kong Chinese Christian Churches Union and another body wrote to the Bills Committee, stating that the Government's policy was unfair to them as many of them were social service providers and religious institutions. Chairman, my amendment to exempt charitable institutions from the Stamp Duty (Amendment) Bill 2012 was negatived. After listening the whole day, I know the Government would say that since charitable institutions were not exempted under the Stamp Duty (Amendment) Bill 2012, they should not be exempted under this Bill as well to ensure policy consistency. I can recite the response. However, as Mr WU Chi-wai's amendment has been passed, I think the Government cannot say that as property owners already have to pay a duty of over 10%, now they are only required to pay 5% more.

We must bear in mind that a duty rate of a few percentage points is a big burden to charitable institutions, and I will fight tooth and nail for any measures to ease their burden. I do so not only for the benefit of individuals but for the benefit of all such institutions and the whole community, which is very important and meaningful. The board members of charitable institutions are sensible people and they will not rashly acquire properties when property prices are rocket-high unless there is truly a need to do so. They will not lightly take any risk because the money is raised from the public and they need to give the public a clear and detailed account of how the money is spent. If they fail to do so, 17122 LEGISLATIVE COUNCIL ─ 15 July 2014 they may very likely be questioned by agencies dedicated to monitoring charitable institutions. These agencies have many websites posting the results of their investigations and inspections. If any charitable institutions have very high operation expenses or rashly acquire properties, they will be rigorously monitored.

People who sit on such boards or monitoring agencies are prominent figures in society or members of the clergy, and many of them are even appointed by the Government. They will not deliberately confront the Government in high profile. Knowing that the Government wishes to suppress the demand in the property market, they will not willfully enter the market to push up the property prices, thereby disallowing the Government to achieve its goal. They are not such people. Their concerns are how the money should be spent and whether they would be held accountable for acquiring a property at such a high price. The congregation and other people who have made donations may query whether the acquisition is appropriate. The property is acquired because there are genuine and practical needs. In the long run, if unfortunately, property prices falls 30% or 40%, mortgage instalments will be paid provided that members of the congregation will make donations on a regular basis, or the social service institution can still receive subsidy from the Government for the continued provision of services. That is the situation.

Therefore, charitable institutions will not worry about the plunge in property prices as they do not intend to acquire properties when prices are low and sell them when prices are high. Hence, the institutions will acquire properties for self-use when such need has arisen. However, the Government still requires them to pay an additional tax of a few percentage points. Chairman, this is not fair. This will undermine their enthusiasm and will power and also conveys, in the terminology of the Government, a wrong message.

What is the wrong message? The message is that charitable institutions are not significant. Even if they provide some public services for the Government, they are insignificant. The Government will still levy tax on such institutions, and no exemption is granted. We should consider the services they provide. Normal activities for the right cause should not be stopped. Why should we stop them from acquiring properties to meet the normal needs? I think the Government is sending out a wrong message. In the case of the board member who phoned the radio station yesterday, he had a sense of helplessness. He did support the Government. We all know that many charitable institutions LEGISLATIVE COUNCIL ─ 15 July 2014 17123 are heavily subsidized by the Government. Why will they oppose the Government? But he was aggrieved and could not understand why the Government has to implement such a measure. It is difficult to understand and accept the measure. He was not the only board member who has such a feeling. Of course, for charitable institutions which have no need to acquire properties, they will not feel agitated, but should such a need arises, they will feel helpless and do not understand why the Government has to do so.

I hope Honourable colleagues would understand that the impact of my amendment will be limited, as only a few thousand institutions under the "licence 88" will be affected. Besides, according to the record, they do not buy or sell properties often. We are familiar with people running charitable institutions and many colleagues also serve as board members of these institutions. They know what kind of operations these institutions have engaged in. If the Government queries whether there are black sheep among a few thousand institutions, we cannot guarantee that the policy is totally faultless.

Similarly, no one can guarantee that this amendment is faultless. However, we are familiar with these institutions because they are closely related to us in the community. Fellow colleagues are also familiar with them and some of them are also members of their consultative committees. Are most of these institutions irresponsible? No. They have to calculate very carefully when acquiring properties. Right? They would not make hasty decisions. When they need to acquire properties, why must the Government penalize them? Why must it impose an additional 5% charge to their cost?

Chairman, I hope that Honourable colleagues will support my amendment.

Proposed amendments

Clause 18 (See Annex II)

Clause 24 (See Annex II)

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, the Government proposes that clause 24 of the Bill, as set out in the paper circulated to Members, be amended. The amendment is a 17124 LEGISLATIVE COUNCIL ─ 15 July 2014 technical amendment which makes consequential changes to the reference next to the headings in Schedule 1 corresponding to the proposed additional provisions in the Bill.

Mr James TO's amendment aims at exempting the acquisition of residential and non-residential properties by charitable institutions or trusts of a public character (trusts) that are exempt from tax under section 88 of the Inland Revenue Ordinance (Cap. 112) (IRO) from the doubled ad valorem stamp duty (AVD). We consider Mr TO's amendment inconsistent with our current inland revenue and stamp duty systems and it will also weaken the effectiveness of the AVD. Therefore, we cannot accept his amendment.

According to the present arrangement, giving residential or non-residential properties as a gift to charitable institutions or trusts that are exempt from tax under section 88 of the IRO has already been exempt from the AVD, which is consistent with the present mechanism in relation to the AVD, Special Stamp Duty and Buyer's Stamp Duty (BSD).

Under the Stamp Duty (Amendment) Ordinance 2014 enacted earlier, the acquisition of residential properties by charitable institutions or trusts is not exempt from tax but chargeable to the BSD. As regards the AVD, we consider it inappropriate to set another criterion in the Bill to exempt charitable institutions or trusts from paying the AVD on its acquisition of properties. In the face of the present tight supply of properties, Mr James TO's proposal does not conform to our policy objective.

At present, there are a total of over 8 000 charitable institutions or trusts which are exempt from tax under the IRO. Under the current taxation system, charitable institutions are not granted general tax exemption. Only profits made from the specific business relating to their charitable purpose are exempt from tax under the IRO. The IRO does not forbid charitable institutions to engage in business unrelated to their charitable purpose but the profits gained from such businesses are chargeable to profits tax.

Furthermore, the IRD is only responsible for handling tax exemption of charitable institutions. It does not involve regulating their day-to-day operation, including their fund-raising activities, financial transparency and management framework. Like other companies, charitable institutions are free to carry out transactions in the property market and acquire residential or non-residential LEGISLATIVE COUNCIL ─ 15 July 2014 17125 properties for investment in order to support their operation. In this regard, they are no different from other companies. Exempting them from the AVD may stimulate their demand for residential or non-residential properties and hence slacken the effectiveness of the demand-side management measures.

I wish to point out that all along, charitable institutions are no different from ordinary buyers and they have to pay the AVD on their acquisition of properties. They are only exempt from taxes, including profits tax, under the IRO with the approval of the Commissioner of Inland Revenue under section 88 of the IRO. These taxes and their natures are different from the nature and purpose of the stamp duty.

Mr James TO's amendment has not imposed any restrictions to plug the foreseeable loopholes. In other words, the IRD must, upon receiving the application made by a charitable institution, exempt the charitable institution or trust from payment of the AVD if it is satisfied that the charitable institution or trust has already been exempt from tax under section 88 of the IRO on the date the property is acquired, regardless of whether the charitable institution or trust acquires the property on its own behalf or how the property will be used. We can foresee that Mr TO's amendment will make available a channel for tax avoidance, which will provide an incentive for some people to acquire properties for investment purposes through a charitable institution or trust, thereby avoiding the payment of the AVD. The effectiveness of the AVD will be slackened.

I hope that Members will see clearly that the Bills Committee has not reached a consensus on the amendment. Mr TO also proposed a similar amendment to the Stamp Duty (Amendment) Bill 2012 to exempt charitable institutions from paying the BSD and the amendment was negatived by the Legislative Council.

To conclude, we consider it inappropriate to exempt charitable institutions or trusts from the AVD. I sincerely urge Members to maintain their stance and vote against Mr TO's amendment.

CHAIRMAN (in Cantonese): Does any Member wish to speak?

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DR FERNANDO CHEUNG (in Cantonese): Chairman, I speak in support of Mr James TO's amendment. When we discussed the Buyer's Stamp Duty earlier, the Government did not support the same proposal, the reason given then was the same as those given today with regard to the doubled ad valorem stamp duty (AVD). According to the Government, although the charitable purpose of a charitable institution is recognized by the Inland Revenue Department (IRD) and the meaning of charity has been defined by law, after the charitable purpose of the institution has been established, the Government does not have a stringent system to monitor whether this institution has genuinely engaged in charitable work.

The Secretary is right in saying that the IRD does not have a system to monitor the operation of charitable institutions. It only conducts random audits each year. As there are at present over 8 000-odd charitable institutions, I believe the number of institutions being selected for audit is very small. The items to be audited include the tax returns and financial report of the institution. Very often, the IRD will continue to recognize the charitable purpose of the institution and allow it to continue to enjoy the tax exemption status. There are indeed many loopholes in the process of regulation, control or even recognition of the charitable purpose of these institutions.

As far as we see, the IRD does nothing to regulate a newly established charitable institution. It only examines the constitution of the institution to ascertain its purpose of establishment and the work to be undertaken. The institution only requires to submit papers for scrutiny. If the IRD considers the description in the papers submitted satisfies the statutory definition of charity, it will very likely recognize the institution's charitable purpose. As regards those charitable institutions which are in operation, the IRD will require them to produce evidence to prove that their activities conform to the definition of charity. Such practice has given rise to many problems.

Honestly, Chairman, the IRD staff do not have the professional expertise to determine what kind of activities are charitable in nature. Hence, many problems will arise during the process. For example, while the objective of some institutions is to undertake charitable work, the work they undertake, the policy changes advocated or the efforts made to fight for the rights and interests of the underprivileged may not be recognized by the IRD as conforming to a charitable purpose. For some other institutions, their work may not have any connection with charity, but owing to the vivid descriptions as presented in their LEGISLATIVE COUNCIL ─ 15 July 2014 17127 papers, the IRD recognizes their charitable purpose. Therefore, the loopholes and problems mentioned by the Government do exist.

However, according to the direction and spirit of Mr James TO's amendment, if some charitable institutions engage in property transactions for the purpose of public interest and promoting charity in society, why should they be penalized in the form of doubled AVD, the measure implemented to control property prices? Since these institutions engage in charitable work, we should support them as such charitable work should be promoted. Why should they be required to pay the doubled AVD? This is just unreasonable.

According to the Government, even if that is the case, since the operation of charitable institutions cannot be monitored and controlled, a uniform stamp duty has to be levied across the board. However, the Government is duty-bound to monitor charitable institutions and the current problem is caused by the defective system. As in the case of mentally incapacitated persons mentioned by me earlier, there are loopholes concerning the guardianship order. The Government has not done a good job with regard to the recognition of charitable purpose and the regulation of charitable institutions, and yet it levies the doubled AVD on all institutions, regardless of their nature. The Government should bear the responsibility.

I do not deny that among the existing 8 000-odd charitable institutions, not all of them are engaged in genuine charitable work. That is indeed questionable and uncertain. However, it is not right to penalize all charitable institutions just because the Government is incompetent in monitoring these institutions. For example, a charitable institution has acquired or rented some residential units over the past few years for renting to single parent families at a low rent similar to that of public housing. It now owns about a dozen or so such units and the Government also knows about it. If this charitable institution intends to acquire more properties during this period, it will have to pay the doubled AVD. But since the acquisition is for charitable purpose, why does the Government penalize the institution? It would be desirable if the institution is allowed to engage in more charitable work with the resources available.

Of course, according to the current definition, charitable work includes religious, education and poverty alleviation work. Since our community recognizes that such work is worth promoting, why should the doubled AVD be levied to penalize the institution? It is already wrong for the Government to impose the Buyer's Stamp Duty on charitable institutions, and the explanation 17128 LEGISLATIVE COUNCIL ─ 15 July 2014 given is that such institutions cannot be monitored. However, this should be the Government's responsibility. Since the Government recognizes them as charitable institutions, it should improve the regulatory work. There are many examples in overseas countries that charitable institutions are regulated through legislation and the system.

Earlier, the Law Reform Commission of Hong Kong (LRC) published a Consultation Paper on Charities, proposing detailed recommendations in this area. Of course, the social welfare sector or charitable institutions may not accept all the recommendations and many of the recommendations may not be appropriate, but some recommendations are worthy of consideration. After reading the report, the Government just shelved it in the library and nothing has been done; I wonder if it considers the recommendations too controversial. Just like most of the reports published by the LRC in the past, this report which proposes the enactment of a charity law is no exception. The Government refuses to make effort, and it indiscriminately introduce a new legislation across the board to rectify the situation, disregarding the fact that the problem is actually caused by the mishandling of the Government.

Therefore, I support Mr James TO's amendment and its direction. We agree that we should also address the concerns raised by the Government. As the Government is well aware of the loopholes, it should improve the relevant system expeditiously and step up the regulatory work, instead of penalizing all charitable institutions across the board. That is a wrong direction.

I so submit.

MR WU CHI-WAI (in Cantonese): Regarding the issue of whether charitable institutions should be exempt from the doubled ad valorem stamp duty (AVD), similar discussion had been held during our scrutiny of the Stamp Duty (Amendment) Bill 2012. The arguments are more or less the same. We fully appreciate the contribution made by charitable institutions in Hong Kong in promoting public interest in society. We are also aware that charitable institutions do not always engage in activities that totally conform to their charitable purpose. But no matter what, under the Inland Revenue Ordinance, even if the profits are not derived from activities relating to the charity purpose of the institution, such profits should eventually be ploughed back as resources for promoting the charitable purpose of the institution.

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As a matter of fact, this is the prevailing practice of many charitable institutions, especially in the past 10-odd years, as many institutions have operated social enterprises under the Government's encouragement. Concerning the operation of social enterprises, I had also been a victim as my social enterprise had once been queried by the Inland Revenue Department (IRD). It claimed that the activities organized by the social enterprise in concert with the Home Affairs Department under the Enhancing Self-Reliance Through District Partnership Programme did not conform to our charitable purpose. The IRD staff also warned and reminded us that we had to use the resources properly. The IRD did not further challenge our work because the profits made by our social enterprise must be spent on charitable services; and if we lost money, we would be criticized by the IRD for losing the important and valuable resource of the charitable institution.

Over the past 10-odd years, charitable institutions have very often been invited by the Government to organize activities or operate social enterprises. Hence, it is quite normal that charitable institutions have the need to purchase bigger premises to hold such activities. However, in implementing this policy, the Government indiscriminately requires charitable institutions to pay the doubled AVD and Buyer's Stamp Duty. Even if a charitable institution receives a generous donation from benefactors to acquire a property to operate social enterprises or provide charitable services, it has to pay these taxes. Is it fair? While the Government indicates that the policy is to combat speculative activities, it has dealt a blow to the normal services and work of charitable institutions. That is what we call victimizing the innocent.

Chairman, it is normal to have a black sheep in a flock. Earlier, Mr James TO proposed an amendment to the provision that allows one to purchase 100 properties under one instrument. Members said that the provision could not be changed or revised, and any slight changes would have impacts and some people would suffer. However, if we think a little more deeply, is that not a loophole? Someone blatantly exploits the policy loophole and the exemption provided by the ordinance to purchase a number of units under one instrument. How about charitable institutions? One has to establish a charitable institution in the first place, and use it to cheat the IRD for the 5% tax. Which of the two scenarios is more likely to happen? If one wants to exploit the legislative loopholes, why not acquire multiple properties under one instrument to make a profit, why should he take all the trouble to establish a charitable institution and give the IRD a chance to nitpick him? Members should think about it carefully.

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I detest the remark made by the Secretary just now. In order to explain why charitable institutions should not be exempted, he went so far as to smear them, saying that many institutions are not doing chartable work and many areas are not being monitored. He even accused the IRD of not properly monitoring the charitable institutions and the audit reports prepared by the auditors are inadequate and inaccurate. In order to defend why he could not accept this amendment, the Secretary should try to find a more credible reason. How could he give such irrelevant remarks and even wrongly accuse his fellow colleagues, the IRD, auditors as well as charitable institutions? Is that fair and reasonable?

Chairman, Mr James TO's amendment is actually very humble. Recently when I attended a banquet of a certain charitable institution, I was told that if the Government was sincere in handling this issue, it could have taken the initiative to discuss with Mr James TO after receiving his amendment in order to enrich its contents. I presume the Government worried that some anomalies would happen, such as someone would speculate on properties in the name of a charitable institution. If so, it could have discussed with Mr James TO and proposed to adopt Mr Kenneth LEUNG's proposal, charging the duty first and refund later. Is this feasible? However, the Government refused to give any thought to the amendment. It insisted that the integrity of the policy must be maintained; otherwise it would send out a wrong message to the market and undermine the effectiveness of the Stamp Duty Ordinance. What kind of government is that? It could provide a timely solution to the problem so long as it did not have the mentality of rather victimize the innocent than allow any slips. There are many solutions to the problem but the Government just does not care.

Since we started scrutinizing the Stamp Duty (Amendment) Bill 2012, the Secretary repeated the same argument at every Legislative Council meeting, just like a human recorder. He said repeatedly that the amendment would "undermine the effectiveness of the ordinance", "weaken the effectiveness of the ordinance", "convey a wrong message to the market" and that "the Government cannot monitor the institutions", and so on. What should be done? If, under the Stamp Duty Ordinance, the Secretary has identified so many malpractices and problems concerning charitable institutions but has not faced the problem squarely, he has failed to perform his duty. If his colleagues have not done anything wrong but are being wrongly accused, he should speak out for them and do justice to the IRD.

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Frankly, perhaps many Members present may have tried to apply for the "licence 88". Do you think you can get approval easily without having to undergo vetting? I do not know who can be granted the "licence 88" just by the provision of his business card. I do not believe there are such cases. When examining the constitution, rules and regulations of a charitable institution, the IRD will thoroughly examine the purpose, objective and operation mode of the institution concerned. Normally, charitable institutions have to prepare audit reports every year. Do you think the auditors responsible for preparing those reports are fraudsters and deceive people? Should all these be true, even if the IRD leaves out big charitable institutions but only targets at small institutions when conducting random audits, it is still likely that such wrongdoings would be uncovered. Who dares cheat the Government? Why should one cheat the Government? Just for the 5% doubled AVD? Secretary, do you think anyone would believe that?

Therefore, concerning this part, I do not understand why other colleagues would oppose the amendment. I would like to ask Members to consider carefully. When charitable institutions acquire non-residential properties with money from their benefactors, why should 5% of the donation be used for paying tax?

Charitable institutions are often criticized for their high administration costs. One can verify this comment by examining their audit reports. But this is a point that people often talk about. However, why is it wrong for an institution to acquire a property through proper means for a charitable purpose, as in the case mentioned by Dr Fernando CHEUNG concerning the acquisition of residential units to be rented out to the underprivileged at a low rent? Why should the Government rip them off? Will the Government get a considerable amount of revenue? If not, my next question is: will this convey a bad message to the market, implying that the "curb" measures will be adjusted downward? What is the point of setting up a charitable institution to lessen the effect of the "curb" measures?

As regards the loophole relating to the acquisition of "N" properties under one instrument, the authorities did not allow Mr James TO to plug it. It hurriedly summoned Members to stop the passage of the relevant amendment. Which of these two loopholes has more serious effect? Once the Bill is passed, one can acquire "N" properties under one instrument and still enjoy the exemption. The authorities did not plug the loophole and claimed that people 17132 LEGISLATIVE COUNCIL ─ 15 July 2014 should not be barred from buying adjoining flats. As for the restrictions that should be imposed, it did not even want to hold any discussion.

Chairman, I am very disappointed about the series of speeches made by the Secretary on this stamp duty bill today. I seldom get so furious. Being a professor of economics, the Secretary has completely disregarded the general knowledge in economics when he spoke on the Stamp Duty Ordinance. He has not seriously addressed the fundamental relationship between supply and demand; and has not distinguished clearly the different tools used for speculation and investment. He only chooses the easy way out by repeating the following four points: conveying confusing messages, eroding the effect of the "curb" measures, having difficulty in investigating malpractices, failing to uphold the relevant policy objectives on the part of the Government.

Chairman, you always criticize us for repeating our points, but the Secretary has kept repeating the four points mentioned above at today's meeting, to which I am extremely disappointed. I very much hope that fellow colleagues would listen carefully to my views and analyses and consider whether charitable institutions should be exempted in view of their contributions to Hong Kong. If exemption is granted, they can save a few percentage points of tax. Though the amount is not considerable, it is an important resource for the service providers. Most importantly, charitable institutions have to account for every cent they spend and report to their benefactors. Is it fair if the institution has to ask its benefactors to donate 5% more so as to maintain the existing services because the Government asks the institution to take into account of the interest of the whole? Is this an insult to the charitable institutions which have made great contributions to Hong Kong society? Upon hearing Secretary Prof K C CHAN's smearing words, I solemnly hope that the Secretary would clarify or even withdraw his words which disrespect the work of charitable institutions.

Thank you, Chairman.

MS STARRY LEE (in Cantonese): Chairman, the Democratic Alliance for the Betterment and Progress of Hong Kong (DAB) opposes Mr James TO's amendment. I must stress that our position regarding the amendment has always been the same. As I have said time and again, this is an extraordinary measure introduced under exceptional circumstances, and the uniqueness lies in its immediate implementation upon announcement. The market has absorbed the relevant measures under the Stamp Duty (Amendment) Bill 2013 (the Bill) after LEGISLATIVE COUNCIL ─ 15 July 2014 17133 its announcement, and different stakeholders have a certain understanding of the present Bill submitted by the Government for our scrutiny.

There are certain distinctions between the Bill and other bills. For other bills, the authorities normally consult the public first before submitting them to us so that we can consider how to implement them. The market message conveyed by the amended bill is very different from today's situation.

Hence, as always in the past, we have carefully considered the various amendments proposed by Members to the Bill submitted by the Government. The interpretation of the market is simple and there is nothing we can do about it. As more than one year has elapsed since the announcement of the Bill, any changes to the Bill will simply be interpreted by the market as an upward or downward adjustment of the "curb" measures or an act of bowing to pressure. Hence, the DAB must conscientiously study the message conveyed by such changes to the market. Some people may disagree but I believe this is a kind of judgment, that is, the message is for the market to interpret, and not all consumers would listen to all the speeches of Legislative Council Members throughout the whole debate. As a matter of fact, from the technical amendment to the period of changing flats, we can see that the property market is indeed very sensitive and we cannot deny that many people with ulterior motives would use the revised information to convey messages in their favour. Therefore, we have always treated any amendments proposed by Members seriously.

Of course, apart from the message conveyed, we also consider the real operation. We do understand the problems related to charitable institutions in Hong Kong. We had also discussed the relevant issue at meetings of the Bills Committee on Stamp Duty (Amendment) Bill 2012. Some charitable institutions also wrote to us to express their views. However, we must admit the present situation about charitable institutions in Hong Kong. As mentioned by the Secretary just now, there are 8 000-odd institutions; the number of institutions we are not familiar with outnumber those we know.

Are there stringent requirements for organizations to apply for the status of charitable institutions? I think Members or others who have applied before would agree that certain requirements have to be met. The Inland Revenue Department (IRD) would not approve the applications rashly. It mainly requires the applicants to submit their future business plan. But is this very difficult to get approval? Will the authorities strictly inspect the particulars of board members of the institution or impose very stringent restrictions on their charitable 17134 LEGISLATIVE COUNCIL ─ 15 July 2014 business? Actually, that is not the case. Besides, after a charitable institution is established, the IRD will only conduct random audits and the major item of inspection is whether the institution will continues to use its money in Hong Kong.

Therefore, what the Secretary has just said is true, that is, there are still loopholes in the regulation of charitable institutions. As I have just said, if there is exemption, it is open to abuse as people in Hong Kong have a quick mind and professionals will raise many ideas. During the scrutiny of the 2012 Bill, we discussed with taxation experts the issue of exemption, and they told us that if there was an exemption, there were ways that people could exploit it. Of course, I am not implying that everyone will find ways to exploit such loopholes, but there is indeed room for people to do so. For example, as told by some experts, since there is no regulation on the relationship among members of a charitable institution, some close relatives or people with ulterior motives can form a charitable institution and then acquire properties. That is actually a way to evade paying the doubled AVD.

Given the large number of charitable institutions at present, the less than satisfactory regulatory framework, as well as the fact that the Bill has been in force for over a year, and that we had stringently handled the granting of exemption to charitable institutions in respect of the SSD and BSD, the DAB will not support the amendment proposed by Mr James TO.

MR DENNIS KWOK (in Cantonese): Chairman, I lend my support to the amendment about charitable institutions on behalf of the Civic Party. Actually during the scrutiny of the Buyer's Stamp Duty, we also discussed the amendment about charitable institutions and we supported it. Why? A number of colleagues, including Mr WU Chi-wai and Mr James TO, have said that charitable institutions should be exempt from the doubled ad valorem stamp duty (AVD).

According to the Government's justification, charitable institutions may abuse the exemption or someone may deliberately make use of a charitable institution to engage in speculative activity. As a matter of fact, this argument is based on the assumption that the charitable nature of charitable institutions is questionable. That is to say, even though they claim to be charitable institutions, the Government does not believe in them and consider that they will use the money to speculate.

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I must point out that the Law Reform Commission of Hong Kong (LRC) published a report last year, pointing out that charitable institutions were actually regulated at present, but the problem was that under section 88 of the Inland Revenue Ordinance (IRO) (Cap. 112), the list of tax-exempt charitable institutions were not comprehensive enough and there was no conclusive evidence to prove that they were charitable institutions. In other words, some charitable institutions in Hong Kong are not on the list under the IRO. According to the LRC, this problem could be easily rectified by requiring all charitable institutions in Hong Kong to register before a certain date and in a certain place; and when they registered, they must produce more comprehensive information to prove their genuine status as charitable institutions. Besides, the list is open to the public for inspection.

If this administrative measure can be implemented, the transparency of charitable institutions will be greatly enhanced as the public can find out which organization is a charitable institution since there is a comprehensive list of such institutions. Since the LRC had put forward this administrative measure, the task could easily be accomplished if the Government was willing to take action.

Therefore, under section 88 of the IRO, certain charitable institutions are exempt from tax in the first place. This measure is nothing new and has been proven effective. With the introduction of the new AVD, the Government stops this policy which has been proven effective in exempting charitable institutions from tax on the pretext that certain charitable institutions cannot be regulated as they may abuse the exemption or their composition or purpose is uncertain. However, the LRC had already proposed how to enhance the present transparency by requiring all charitable institutions in Hong Kong to register. Yet, the Government has just ignored this proposal.

The Government not only refuses to rectify the problem, but arbitrarily claims that since the detailed information concerning these charitable institutions is not known, it is better not to grant them exemption lest they will abuse it. The Government's justification is not sound and in fact it is self-contradictory. Therefore, we, the Civic Party, will support the amendment concerning charitable institutions.

I so submit.

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CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, do you wish to speak again?

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, although I have not stayed in the Chamber, I have been watching live television broadcast.

I understand the rationale concerning granting exemption to charitable institutions. In the discussions held today and yesterday, Members have been arguing about what exemptions should be allowed, what actions should or should not be taken under this measure. For instance, some Members queried if the Government has given comprehensive consideration, if some measures will victimize the innocent and why the Government did not grant exemption to certain groups.

If we think it over again, there must be many examples that are worth considering. Any of us can think of some examples, such as … I have thought about … We have discussed previously and today if small enterprises should be given exemption. What about big enterprises? Should purchasers under the Tenants Purchase Scheme be exempted? If so, why have some other groups not been granted exemption? Members mentioned today that if this group is granted exemption, the other group should also be granted exemption so as to ensure fairness.

Hence, in formulating this extraordinary measure introduced under exceptional circumstances, we have considered in detail the number and the extent of exemption to be granted. In view that this is an extraordinary measure introduced under exceptional circumstances, we tend to be fair to every person or organization in Hong Kong as far as possible. Should exemption be granted, we have to consider clearly and ensure that no controversy should be involved.

Hence, exemption is granted for residential units. In order to cater for the needs of first time home buyers, we grant them exemption. However, for some LEGISLATIVE COUNCIL ─ 15 July 2014 17137 other groups, everyone has his or her idea about which target group should be exempted. From an overall perspective, if all target groups that we care for is granted exemption, the integrity of this extraordinary measure introduced under exceptional circumstances will be affected, and many loopholes will arise.

Members may say that the Government's inadequate planning is the root of the problem. They query why the Government always uses the integrity of the measure as a pretext to oppose amendments. Let me explain. We have considered different scenarios when formulating this measure. In our view, if exemption is granted to a certain group of people, some other groups of a similar nature will query why they are not given any exemption. They may query if the Government has not considered their need because their voice is not big enough.

Yes, I understand that Members consider it necessary to grant exemption to charitable institutions. However, after considering the entire situation, and as mentioned by me just now and pointed out by many Members, it is difficult to give a definition of charitable institution under our current management measures. Under our current tax system, we only exempt charitable institutions from paying profits tax. If the institutions are also exempt from stamp duty, it does not conform to our current tax system.

Therefore, all in all, we still maintain that … first of all, we have to ensure the fairness of this extraordinary measure introduced under exceptional circumstances, and maintain our current tax system. Chairman.

CHAIRMAN (in Cantonese): Mr James TO, do you wish to speak again?

MR JAMES TO (in Cantonese): Chairman, the main point raised by the Secretary in this speech is that once exemption is granted, requests for more exemptions will follow, rendering the measure ineffective. It is easy to make such a remark. However, since the introduction of the 2012 and 2013 stamp duty bill, a long period of time has elapsed, and how many people have made a written request? No written request from any organization has been received. Regarding the two bills, the consideration made by Members is related to some major but not insignificant issues. The Government cannot say that Members propose amendments on this and that aspect. This is not the case. Instead, 17138 LEGISLATIVE COUNCIL ─ 15 July 2014

Members focus on several major aspects. Since these major aspects involved specific social functions and needs, we thus seek the Government's consideration.

Chairman, I find the remark made by the Secretary just now unacceptable. I interpret his words to mean that the situation of backdoor practice may arise, in which people acquire properties in the name of charitable institutions. The authorities have no way to verify if the several thousand charitable bodies acquire properties for self-use or for some other parties. If people acquire property by means of such backdoor practice, they can save 5% tax. However, may I ask what is to be acquired? We are talking about acquiring properties. Properties are registered with the Land Registry. Assuming that a friend of the director of the Boys' & Girls' Clubs Association of Hong Kong (BGCA) acquires a luxurious apartment at 39 Conduit Road in the name of the BGCA, will this be reported in the press the next day? This will definitely be made public. In addition, as the charitable institutions defined under "licence 88" have the names of their directors made public, will follow-up actions not be taken by the community? The estate agent alone will spread the news as he will not believe that the property acquired on behalf of the director concerned will be used as staff quarter.

Secretary, it is easy to make such comment. Please bear in mind that the colleagues sitting behind the Secretary will ask the buyer whether he buys the property with his own money. I learn it from the Secretary. Some time ago, when we discussed the bill related to the acquisition of residential property by minors through his or her trustees or guardians, the Secretary advised that the Government would ask the buyers if he or she acquired the property for self-use or for someone else, and where did he or she get the money for the acquisition. What kind of people will be board members of charitable institutions? They are mostly decent and respectable persons, and many board members are appointed by the Government. Government officials may also be board members. Will they allow the backdoor practice of acquiring luxurious apartments or speculating on shop premises in the name of charitable institution? Is the Secretary making up stories? Can the system be risk-free? Nobody can guarantee. Since the Secretary cannot guarantee a risk-free policy, this amendment cannot possibly give rise to a crisis or create serious loophole.

Chairman, though some Honourable colleagues may have divergent views, as far as the current regulatory measure is concerned, I consider it very difficult to meet the requirements under "licence 88". In case there is anything wrong, these LEGISLATIVE COUNCIL ─ 15 July 2014 17139 backdoor transactions may even be uncovered. It will easily be noticed if someone acquires luxurious apartments without a reason. People are alert to irregularities. Any outrageous behaviour will definitely catch people's attention. Also, backdoor acquisition of property in the name of charitable institutions will spark public outrage. Just consider how many people may know about the transaction. Once uncovered, one can hardly evade sanction. Moreover, the relevant persons have to fill in different forms, take oaths or make declaration, and he will also be questioned by the authorities concerned. Anyone who provides false information to the Inland Revenue Department may be sentenced to imprisonment. According to the Government, in respect of the entire regime, someone may engage in backdoor acquisition and speculation of residential or commercial properties through a resolution made by the Board of Directors of the charitable institution concerned. While this may be true, given that there are many other loopholes under the relevant Bills which are subject to manipulation, why would people resort to this practice as mentioned by Mr WU Chi-wai?

We should never put it that way. If the Government insists on turning down every amendment put forward by Members and considers that only the policy proposed by the Government is most appropriate and brilliant, I have nothing to say. However, will a reasonable Government consider this amendment a big loophole? Please do not exaggerate the problem. If the Government, for the sake of a tax rate at a few percent, describes the current regulatory system as ineffective, I think its comment is completely inaccurate.

Recently, the Law Reform Commission of Hong Kong has advised that there might be a need to conduct a study on how to monitor charitable institutions. The Secretary for Home Affairs then responded, on behalf of the Government, that the current system was still effective. Do we have the same government? The Secretary said that the regulatory system is ineffective, and people abuse the system to save 5% of tax. Given the limited number of property transactions in recent days, if a charitable institution suddenly acquires multiple properties for no reason, will people not investigate and report? Does the institution want to be sanctioned? Can cases of abuse be possible under the monitoring of the whole community? Will someone acquire a $3 million property to save some $100,000? I find it absurd and unbelievable. Can I buy a property in the name of a charitable institution if the property is worth $300 million? Which charitable institution will allow me to do so?

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Chairman, I remember that in 2012, Members from the pan-democratic camp and a majority of Members from the Liberal Party and the Business and Professionals Alliance for Hong Kong supported similar amendments. I hope Honourable colleagues can work together and create another miracle today by making a right decision to strike a reasonable balance.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the fifth amendment moved by Mr James TO, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr James TO rose to claim a division.

CHAIRMAN (in Cantonese): Mr James TO has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Functional Constituencies:

Mr Albert HO, Mr James TO, Mr Tommy CHEUNG, Mr Frederick FUNG, Mr Vincent FANG, Prof Joseph LEE, Mr CHEUNG Kwok-che, Mr Frankie YICK, Mr Charles Peter MOK, Mr Dennis KWOK, Mr IP Kin-yuen and Mr CHUNG Kwok-pan voted for the amendments.

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Mr Jeffrey LAM, Mr WONG Ting-kwong, Ms Starry LEE, Mr CHAN Kin-por, Mr NG Leung-sing, Mr Steven HO, Mr YIU Si-wing, Miss CHAN Yuen-han, Mr KWOK Wai-keung, Mr Christopher CHEUNG, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu, Ir Dr LO Wai-kwok and Mr Tony TSE voted against the amendments.

Geographical Constituencies:

Mr LEE Cheuk-yan, Mr LEUNG Yiu-chung, Ms Emily LAU, Ms Cyd HO, Mr Paul TSE, Mr Alan LEONG, Ms Claudia MO, Mr WU Chi-wai, Dr Kenneth CHAN, Dr KWOK Ka-ki, Dr Fernando CHEUNG, Mr SIN Chung-kai and Dr Helena WONG voted for the amendments.

Mr CHAN Kam-lam, Mr TAM Yiu-chung, Mr WONG Kwok-hing, Mr CHAN Hak-kan, Dr Priscilla LEUNG, Mr WONG Kwok-kin, Mrs Regina IP, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr WONG Yuk-man, Mr Gary FAN, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Mr LEUNG Che-cheung, Miss Alice MAK, Dr CHIANG Lai-wan and Mr Christopher CHUNG voted against the amendments.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 27 were present, 12 were in favour of the amendments and 15 against them; while among the Members returned by geographical constituencies through direct elections, 31 were present, 13 were in favour of the amendments and 17 against them. Since the question was not agreed by a majority of each of the two groups of Members present, he therefore declared that the amendments were negatived.

CLERK (in Cantonese): Clause 18 as amended.

17142 LEGISLATIVE COUNCIL ─ 15 July 2014

CHAIRMAN (in Cantonese): As the amendments to clause 18 have been passed earlier by Committee, I now put the question to you and that is: That clause 18 as amended stand part of the Bill. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CHAIRMAN (in Cantonese): Secretary for Financial Services and the Treasury, you may now move your tenth amendment to amend clause 24 as set out in Appendix IA to the Script.

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, I move my tenth amendment to amend clause 24 as set out in Appendix IA to the Script.

Proposed amendment

Clause 24 (See Annex II)

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the tenth amendment moved by the Secretary for Financial Services and the Treasury, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

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CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the amendment passed.

CLERK (in Cantonese): Clause 24 as amended.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That clause 24 as amended stand part of this Bill. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CHAIRMAN (in Cantonese): Mr Tommy CHEUNG has given notice to move his second amendment to amend clause 23 as set out in Appendix IA to the Script.

This amendment concerns the date on which relevant provisions of the doubled ad valorem stamp duty will cease to have effect.

MR TOMMY CHEUNG (in Cantonese): Chairman, I move my second amendment to amend clause 23 as set out in Appendix IA to the Script.

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Chairman, on behalf of the Liberal Party, I propose another amendment to provide that the doubled ad valorem stamp duty (AVD) will lapse by midnight of 23 February 2015, or on another date specified by the Financial Secretary by notice in the Gazette, subject to the approval of the Legislative Council.

Mr Andrew LEUNG, a representative from the Business and Professionals Alliance for Hong Kong, has in fact proposed a similar amendment to the effect that the doubled AVD will expire by midnight on 23 February 2016, that is, one year later than my proposed date. However, he withdrew his amendment later. I do not know if this is because he finds my amendment better or he has changed his mind. Perhaps he may find it meaningless to introduce a sunset clause at this moment when the market has basically absorbed the negative impact of the doubled AVD.

Anyway, the Liberal Party always insists that it is necessary to introduce a sunset clause in relation to the Stamp Duty (Amendment) Bill 2013, so as to set a time frame during which the Government must review the effectiveness and the need to implement the measure in future.

The Liberal Party reiterates its regret that the authorities have changed its direction in recent years and have constantly intervened the market by means of administrative measures, thereby disrupting the principle of "free economy" that Hong Kong has all along been upholding. Since the Government has pointed out that the doubled AVD is "an exceptional measure under exceptional circumstances", it should send out a clear message to the community or even to the world that this measure is not a longstanding policy of Hong Kong and it will eventually be withdrawn. By then, Hong Kong will be back on the right track and continue to uphold the principle of "free market".

The Liberal Party can hardly agree to the authorities' comment that "it is not possible to predict with certainty future market directions and various external changes factors to pre-determine a date as to when the demand-side management measures would no longer be applicable". We also understand that the market is ever-changing, hence in my amendment, apart from setting a definite date on which the doubled AVD measure will cease to have effect, we also allow certain flexibility so that the Financial Secretary can specify another effective date subject to the approval of the Legislative Council. In other words, even if there are changes in the market, a mechanism is still in place to adjust the relevant arrangements. There is nothing the authorities should worry about.

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In response, the authorities pointed out their concern that any prescribed sunset clause might disseminate a wrong message to the market. The more often a lie is repeated, the more likely people will believe in it. If this lie is repeated, I am afraid the Secretary will believe that a wrong message will be sent out even when he is asleep. However, right from the beginning, the Liberal Party considers that a wrong message will indeed be disseminated if a sunset clause is not introduced. It creates uncertainty and home buyers are unable to decide when they should buy property. As a result, it freezes normal investment activities and adds to uncertainty in long-term business planning of the business community and the general public. Although the authorities have assured several times that they will withdraw the demand-side management measures when property market operation resumes normal with re-balanced demand and supply, the Liberal Party still does not think this is adequate.

As representatives of deputations such as The Law Societyof Hong Kong, the Federation of Hong Kong Industries and the American Chamber of Commerce in Hong Kong have expressed their views to the Bills Committee on Stamp Duty (Amendment) Bill 2013, the authorities should enhance transparency of the Government's decision on the withdrawal of the relevant measures and provide more information to enable business investors and home buyers to conduct an overall risk assessment and make an informed decision on property acquisition, so as to meet the principle of fairness in a free market.

The authorities have advised that they will constantly consider a basket of indicators and take appropriate measures, including making timely adjustment to the measures, with a view to safeguarding the healthy and stable development of the property market. This sounds great, but the truth is that the authorities refuse to set any objective criterion on the pretext of having a basket of indicators, so that they can continue to control and intervene the market through administrative measures.

Chairman, I have grave concern about the problem of the Government's manipulation of the market. Nobody would like to see that. In the past, people were free to make their own investment decisions according to changes in the market. Now, it is difficult to act appropriately. The Liberal Party hopes the authorities can understand that the introduction of a sunset clause is the only way to give policy certainty to the business community and the general public, which is crucial to sustaining business confidence and the stable development of the property market. Although it seems that the authorities have made a slight 17146 LEGISLATIVE COUNCIL ─ 15 July 2014 concession by assuring that a review will be conducted one year after enactment, this is just a verbal commitment. By then, the authorities may simply write a review report and settle the issue. What can we do to force the authorities to set objective criteria? This can only be done by introducing a sunset clause.

The Liberal Party considers that only by setting a time limit can we force the authorities to draw up the objective criteria for reviewing the measure. Also, quantifiable targets and indicators should be set, so that the business community and the general public can assess the reference made by the government in determining the timing for withdrawing the relevant measures.

In fact, there are about six more months to go before the end of February 2015. It is actually appropriate to allow six months' time for the market to absorb the policy impact and make arrangements. If the authorities consider that six months are not enough, they should provide objective criteria and explain why they oppose the introduction of a sunset clause. They should also propose another specific date for approval by the Legislative Council. The Liberal Party and I will definitely welcome this arrangement, so long as the decision-making process is open and fair instead of working behind closed doors.

I implore Members to support my amendment.

Proposed amendment

Clause 23 (See Annex II)

CHAIRMAN (in Cantonese): Members may now proceed to a joint debate on the relevant parts of the original clauses and the second amendment of Mr Tommy CHEUNG. This is the eleventh joint debate.

MR DENNIS KWOK (in Cantonese): Chairman, as it is getting late, I will try to be brief. The Civic Party opposes and does not support Mr Tommy CHEUNG's amendment to introduce a sunset clause.

What are my reasons? I am not going to make the same comment as the Secretary that this will disseminate a wrong message to the market. The LEGISLATIVE COUNCIL ─ 15 July 2014 17147 dissemination of message does not involve a differentiation between right and wrong. The same applies to the interpretation of the Basic Law. There is no such concept as a right or wrong interpretation of the Basic Law. After a message is disseminated, how the market interprets the message actually depends on individual market players or economies. Different people will have different interpretation of the message.

As legislators, we have to make decisions even under the current circumstances, that is, we have no idea about the future performance of the economy and the property market, and we do not know when the United States will fully implement their market exit plan and when the Federal Reserve will decide to increase the interest rate. Having no information on hand, and coupled with the fact of great economic uncertainty at the moment, we also consider that it will cause policy uncertainty if we arbitrarily impose a date on which the measure will cease to have effect. Therefore, in our view, it is not appropriate to introduce a sunset clause now.

On the other hand, Mr Tommy CHEUNG has mentioned just now the verbal commitment of the Government to conduct a review in a year. It is true that the current Government can never convince us with its verbal commitment. Moreover, the review is to be conducted by the Government. That is why nobody believes in its verbal commitment. As in the case of the Marriage Ordinance, the Civic Party proposed a sunset clause and the Secretary said to me, "Don't worry, we will definitely make public our verbal commitment about when to consult the public, hence there is no need to write it down in the law". I told the authorities that their verbal commitment was useless because nobody trusted them. So, I hope that the authorities can think seriously why a majority of Members in this Council do not believe in their verbal commitment.

Chairman, I promise to make a short response. All in all, the Civic Party opposes the amendment proposed by Mr Tommy CHEUNG.

CHAIRMAN (in Cantonese): Does any other Member wish to speak?

(No Member indicated a wish to speak)

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): Chairman, the Government does not agree to Mr Tommy CHEUNG's 17148 LEGISLATIVE COUNCIL ─ 15 July 2014 amendment to introduce a sunset clause. Concerning this important subject matter, the Government holds a completely different stance from that of Mr CHEUNG.

The effectiveness of the demand-side management measures implemented by the Government in addressing the overheated property market has been well recognized. I am not going to repeat here. Despite the preliminary effectiveness of the demand-side management measures, uncertainty still prevails in the market and the supply of property remains relatively tight. I consider it essential to maintain the measures for the time being.

We have pointed out at meetings of the Bills Committee that any wishful thinking about introducing a sunset clause will send out a wrong message to the market. This is inconsistent with our policy intent. No matter how the market interprets such message, we cannot rule out the possibility that it will fuel potential demand and affect the effectiveness of the measures.

The Government is not turning a blind eye to the development of the property market even though it does not introduce a sunset clause. It will continue to closely monitor the property market with reference to the relevant indicators. This is our responsibility. We implement the measures with a view to addressing the overheated property market. We will of course pay attention and see if there is any change in the market. This is what we must do. In fact, we are well aware that the property market is subject to the effect of various factors, including macroeconomic environment, interest rate and capital liquidity, as well as demand and supply in the market. We should not just focus on one of the factors and ignore the others. The Government will definitely make reference to different indicators so as to closely monitor the residential property market. These indicators may include but not limited to information such as property prices, home purchase affordability, property transactions, demand-supply balance, mortgage loan growth and changes of different local and external economic factors.

Members have to understand that we cannot just look at the interest rates and capital flow of other countries. We have to pay attention to the local market as well. The development of the property market is a complicated and dynamic process involving the interplay of various factors. So, if someone asks the Government whether there is a single indicator or formula which can indicate the Government's mode of regulation, I would say that there is no single indicator or LEGISLATIVE COUNCIL ─ 15 July 2014 17149 formula. Neither can any foreign central bank rely on a single indicator if it has to communicate with the market or announce its market exit plan. In particular, the Hong Kong property market is now facing complicated issues both internally and externally, I think we have to consider many different factors. The Government will also make an overall assessment with reference to every relevant indicator.

The Government will take appropriate measures according to market situation, including timely adjustment of the demand-side management measures so as to ensure healthy and stable development of the property market. I have promised to review and report the result to the Legislative Council one year after the passage of the Bill. This is not a casual statement, but a solemn promise made in this Council. We will definitely come back in a year and report to the Legislative Council.

It is worth mentioning that similar amendment was negatived when Members scrutinized the Stamp Duty (Amendment) Bill 2012. I implore Members to act in line with the past decision of this Council and oppose the amendment moved by Mr Tommy CHEUNG.

MR TOMMY CHEUNG (in Cantonese): Chairman, we have been talking about sunrise and sunset over and again during the discussion of the Bill. Some Honourable colleagues have asked me if it is a bit late to propose the introduction of a sunset clause when dawn is coming. Just now, Mr Dennis KWOK has mentioned that this is actually not a deadline. If a sunset clause is introduced, we can also allow the Financial Secretary to specify another date subject to the approval of the Legislative Council.

Regarding amendment to the Rules of Procedure, the pan-democratic Members often query why we have to castrate our powers. However, if they help in formulating the sunset clause, thereby restricting the Government, it has to come here and give us an update. Mr KWOK has just said that he did not believe in the Secretary because he only made a verbal commitment. No matter how solemn this Council is, I believe it is indeed very difficult for Members to trust the Secretary. I am not sure if colleagues of the Secretary will say openly that they trust him, but most Members sitting on my side do not trust the Secretary.

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Chairman, in order not to keep Members in this Chamber any longer, and as I am also a bit tired, and I believe that the Chairman is even more tired, I will speak no more. Thank you, Chairman.

CHAIRMAN (in Cantonese): I now put the question to you and that is: That the second amendment moved by Mr Tommy CHEUNG, as set out in Appendix IA to the Script, be passed. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Tommy CHEUNG rose to claim a division.

CHAIRMAN (in Cantonese): Mr Tommy CHEUNG has claimed a division. The division bell will ring for five minutes.

CHAIRMAN (in Cantonese): Will Members please proceed to vote.

CHAIRMAN (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Functional Constituencies:

Mr Albert HO, Mr James TO, Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Vincent FANG, Mr Frankie YICK, Mr IP Kin-yuen and Mr CHUNG Kwok-pan voted for the amendment.

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Mr Frederick FUNG, Prof Joseph LEE, Mr WONG Ting-kwong, Ms Starry LEE, Mr CHAN Kin-por, Mr CHEUNG Kwok-che, Mr NG Leung-sing, Mr Steven HO, Mr YIU Si-wing, Mr Charles Peter MOK, Mr KWOK Wai-keung, Mr Dennis KWOK, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu and Mr Tony TSE voted against the amendment.

Geographical Constituencies:

Ms Emily LAU, Mr Paul TSE, Mr WU Chi-wai, Mr SIN Chung-kai and Dr Helena WONG voted for the amendment.

Mr LEE Cheuk-yan, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Mr TAM Yiu-chung, Mr WONG Kwok-hing, Ms Cyd HO, Mr CHAN Hak-kan, Mr WONG Kwok-kin, Mrs Regina IP, Mr Alan LEONG, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr WONG Yuk-man, Ms Claudia MO, Mr Gary FAN, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Mr LEUNG Che-cheung, Miss Alice MAK, Dr KWOK Ka-ki, Dr Fernando CHEUNG, Dr CHIANG Lai-wan and Mr Christopher CHUNG voted against the amendment.

Dr Priscilla LEUNG abstained.

THE CHAIRMAN, Mr Jasper TSANG, did not cast any vote.

THE CHAIRMAN announced that among the Members returned by functional constituencies, 24 were present, eight were in favour of the amendment and 16 against it; while among the Members returned by geographical constituencies through direct elections, 31 were present, five were in favour of the amendment, 24 against it and one abstained. Since the question was not agreed by a majority of each of the two groups of Members present, he therefore declared that the amendment was negatived.

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CLERK (in Cantonese): Clause 23 as amended.

CHAIRMAN (in Cantonese): As the amendments to clause 23 have been passed earlier by Committee, I now put the question to you and that is: That clause 23 as amended stand part of the Bill. Will those in favour please raise their hands?

(Members raised their hands)

CHAIRMAN (in Cantonese): Those against please raise their hands.

(No hands raised)

CHAIRMAN (in Cantonese): I think the question is agreed by a majority of the Members present. I declare the motion passed.

CHAIRMAN (in Cantonese): Council now resumes.

Council then resumed.

Third Reading of Bills

PRESIDENT (in Cantonese): Bill: Third Reading.

STAMP DUTY (AMENDMENT) BILL 2013

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY (in Cantonese): President, the

Stamp Duty (Amendment) Bill 2013 has passed through Committee with amendments. I move that this Bill be read the Third time and do pass.

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President, regarding the exemption for transactions under the Tenants Purchase Scheme that has been approved earlier today, I would like to reiterate that this amendment only involves individual cases and will not affect the policy direction of the Government. I respect the Legislative Council's decision, that is, Members adopt a legislative means to handle individual cases in a way they consider more appropriate.

PRESIDENT (in Cantonese): I now propose the question to you and that is: That the Stamp Duty (Amendment) Bill 2013 be read the Third time and do pass.

Does any Member wish to speak?

(No Member indicated a wish to speak)

PRESIDENT (in Cantonese): I now put the question to you.

(Mr LEUNG Kwok-hung stood up and indicated his wish to speak)

MR LEUNG KWOK-HUNG (in Cantonese): I think Secretary Prof K C CHAN …

PRESIDENT (in Cantonese): Mr LEUNG Kwok-hung, I have already put the question to Members.

MR LEUNG KWOK-HUNG (in Cantonese): What?

PRESIDENT (in Cantonese): I have already put the question to Members.

MR LEUNG KWOK-HUNG (in Cantonese): Well, no problem then.

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PRESIDENT (in Cantonese): Will those in favour please raise their hands?

(Members raised their hands)

PRESIDENT (in Cantonese): Those against please raise their hands.

(Members raised their hands)

Mr Tommy CHEUNG rose to claim a division.

PRESIDENT (in Cantonese): Mr Tommy CHEUNG has claimed a division. The division bell will ring for five minutes.

PRESIDENT (in Cantonese): Will Members please proceed to vote.

PRESIDENT (in Cantonese): Will Members please check their votes. If there are no queries, voting shall now stop and the result will be displayed.

Mr Albert HO, Mr LEE Cheuk-yan, Mr James TO, Mr CHAN Kam-lam, Mr LEUNG Yiu-chung, Ms Emily LAU, Mr TAM Yiu-chung, Mr Frederick FUNG, Mr WONG Kwok-hing, Prof Joseph LEE, Mr WONG Ting-kwong, Ms Cyd HO, Ms Starry LEE, Mr CHAN Hak-kan, Mr CHAN Kin-por, Dr Priscilla LEUNG, Mr CHEUNG Kwok-che, Mr WONG Kwok-kin, Mrs Regina IP, Mr Alan LEONG, Mr LEUNG Kwok-hung, Mr Albert CHAN, Mr WONG Yuk-man, Ms Claudia MO, Mr NG Leung-sing, Mr Steven HO, Mr WU Chi-wai, Mr YIU Si-wing, Mr Gary FAN, Mr Charles Peter MOK, Mr CHAN Chi-chuen, Mr CHAN Han-pan, Dr Kenneth CHAN, Mr LEUNG Che-cheung, Miss Alice MAK, Dr KWOK Ka-ki, Mr KWOK Wai-keung, Mr Dennis KWOK, Dr Fernando CHEUNG, Mr SIN Chung-kai, Dr Helena WONG, Mr IP Kin-yuen, Mr Martin LIAO, Mr POON Siu-ping, Mr TANG Ka-piu, Dr CHIANG Lai-wan, Ir Dr LO Wai-kwok, Mr Christopher CHUNG and Mr Tony TSE voted for the motion.

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Mr Abraham SHEK, Mr Tommy CHEUNG, Mr Vincent FANG, Mr Paul TSE, Mr James TIEN, Mr Frankie YICK and Mr CHUNG Kwok-pan voted against the motion.

THE PRESIDENT, Mr Jasper TSANG, did not cast any vote.

THE PRESIDENT announced that there were 57 Members present, 49 were in favour of the motion and seven against it. Since the question was agreed by a majority of the Members present, he therefore declared that the motion was passed.

CLERK (in Cantonese): Stamp Duty (Amendment) Bill 2013.

END OF SESSION

PRESIDENT (in Cantonese): There are still several outstanding items on the agenda. I understand that Members are all extremely responsible persons who will definitely leave this Chamber temporarily with a heavy heart, looking forward to handling these important Council businesses again 84 days later. I now adjourn the Council.

Adjourned accordingly at ten minutes to Eleven o'clock.

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Annex II

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NOT PROCEEDED WITH

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NEGATIVED

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NEGATIVED

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Amendments moved by the Honourable Charles Peter MOK

NEGATIVED

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NEGATIVED

NEGATIVED

NEGATIVED

NEGATIVED

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NEGATIVED

NEGATIVED

NEGATIVED

NEGATIVED

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NEGATIVED

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NEGATIVED

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NEGATIVED

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NEGATIVED

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NEGATIVED

NEGATIVED