A property tax known as "rates" has been levied in Hong Kong since 1845. The tax applies to all domestic and commercial properties unless exempted, and is based upon the rental value of the property, re-assessed each year. Formerly part of the revenue went to the Urban Council and, from 1986, the Regional Council, but since 2000 the whole amount goes to the Hong Kong Government.
The valuation process is the responsibility of the Commissioner of Rating and Valuation, to whom appeals or objections may be submitted. The findings of various legal cases have clarified some aspects of rating law.
History of rates in Hong Kong Introduction Unless specifically exempted under the Rating Ordinance (Chapter 116 of the Laws of Hong Kong), all properties in Hong Kong are liable to rating assessment, with rates payable at a specified percentage of the rateable value assessed on the property. Basically, the rateable value is the estimated market rental value of the property at a designated date.
Origin and early development of rating The rating system in Hong Kong has a history of over 160 years. The first Rating Ordinance, Ordinance No. 2 of 1845, was enacted in that year and related to the Police Rate which was collected to pay the expenses for upholding and maintaining the police force in Hong Kong. Over the following thirty years, services funded by rating such as “Lighting Rate”, “Water Rate” and “Fire Brigade Rate”, were expanded by several subsequent Ordinances. The terms “tenement”, “rateable value” and “interim valuation”, which were re-enacted or introduced in the Rating Ordinance 1888, have remained central to rating law in Hong Kong since then.
Consolidation of rates Prior to 1931, different percentage charges of rates were imposed according to districts. In 1931 the Government recognised the unsatisfactory nature of the large number of different rates of charge. The absence or presence of amenities in certain localities should have been reflected in the rateable value of the property. Consequently, upon the enactment of Ordinance No. 16 of 1931, a uniform percentage charge of 17% of the rateable value was levied in all rated areas for the services provided by the Government. However, water was still seen to justify separate treatment with a fixed reduction of 1% in the rates percentage charge for premises with unfiltered water supply and 2% for premises with no fresh water supply. In 1984, the basis in calculating water reductions was changed. Reductions based on water supply status were to be calculated at a percentage prescribed by resolution of the Legislative Council of the amount of rates payable. With effect from 1 April 1984, the reductions were set at 7.5% and 15% for unfiltered water supply and no water supply respectively.
Urban and Regional Council rates Following the reconstitution of the Urban Council in 1973, rates in the Urban Areas were split into two parts, i.e. “General Rates” to be paid into general revenue and “Urban Council Rates” to be paid to the Urban Council. All rates payable in the New Territories were “General Rates” and paid into general revenue until 1986 when the Regional Council was established.
With effect from 1 April 1986 “Regional Council Rates” was introduced to replace the General Rates and to provide the main source of finance for the newly established Regional Council and were payable in the Regional Council area (i.e. the New Territories). However, the Provision of Municipal Services (Reorganisation) Ordinance abolished the two municipal councils as from 1 January 2000, and since then all rates revenue has become part of the general revenue of the Government.
Annual revaluation The earliest Rating Ordinance, in 1845, provided that “the said Governor and Council may cause a new valuation to be made annually”. However, resource constraints made annual revaluations difficult and an amending Ordinance in 1851 introduced the concept of “adoption” of an existing valuation list, thus avoiding the need for annual revaluations. The “adoption” provision remained a feature in the rating system in Hong Kong until 1973, when the requirement for annual valuations was removed. Henceforth a valuation list would remain in force until a new one was declared.
However, the long lapse of time between revaluations had resulted in large increases in rateable values. In November 1998, the Government announced that new valuation lists would be prepared to take effect from 1 April 1999 and revaluations would thereafter be conducted on an annual basis.
Extension of rating to the New Territories Rating did not apply to the New Territories until 1935, when a modified form of rating based on the capital value of the buildings was introduced to certain areas (Yuen Long and Tai Po in 1935 and Tai Po in 1937) in the New Territories, where certain benefits were granted in the way of street lighting, drainage, water supply etc.
This special rating system for the New Territories was replaced in 1955 by the extension of the urban rating system. The Rating (Amendment) Ordinance of 1954, through which this change was effected, introduced a lower rate percentage charge for the New Territories to reflect the lesser services provided to the region. Agricultural land and buildings were also exempted under the 1954 Ordinance. The new valuation lists incorporating Tsuen Wan, Kwai Chung and a strip along the Castle Peak Road were declared in 1956.
The 1956/57 valuation list for this small portion of land in the western New Territories was intended to be the first stage of a phased programme which would fairly rapidly extend the urban rating systems to other areas of New Territories. However, no further extension took place until 1974, primarily due to Government's earlier undertaking not to assess traditional village houses and the difficulty in agreeing a satisfactory definition of a village house.
The pace of the New Territories extension was later stepped up, with an amendment Ordinance passed in 1975, providing exemption from rates for agricultural dwellings and village houses in the New Territories effective from 1 April 1976. At the same time, a new “phasing-in” system was established for new Rating Areas. In the first year, rates would be charged at 50% of the standard rate charge for the New Territories, and then raised annually by 10% until 100% was reached in the sixth year.
Extension to the remaining areas (1988) The Rating (Areas of Hong Kong) (Amendment) Order 1987 finally extended rating to all remaining areas of the territory with effect from 1 April 1988. Since then, the whole territory of Hong Kong has been subject to rates. Starting from 1990, lists were prepared only for Urban Council (UC) and Regional Council (RC) areas instead of separate valuation lists for the previous 47 Rating Areas. After the dissolving of the Urban and Regional Councils in 2000, a single valuation list was prepared for the whole area of Hong Kong as there was no distinction between UC and RC areas.
Liability for Rates Definition of Tenement Rates are a form of tax levied on occupation of landed property. In Hong Kong, the unit of assessment for rating purposes is a “tenement”, defined in the Rating Ordinance as
“any land (including land covered with water) or any building, structure, or part thereof which is held or occupied as a distinct or separate tenancy or holding or under any licence.”
The definition of “tenement” was considered in detail by the Lands Tribunal in the rating appeal Yiu Lian Machinery Repairing Works Ltd & Ors v Commissioner of Rating and Valuation HKDCLR 32. The Tribunal observed that the definition consists of two limbs, stating that –
(a) “The first limb concerns the subject matter to be rated, namely, land, buildings and structures” and (b) “The second limb only makes even those three species of property rateable, if they are held or occupied as a distinct or separate tenancy, holding or licence.”
“Occupied” carries its literal meaning of somebody or something physically using or occupying the land. “Held” implies ownership. “Distinct or separate” defines the conditions under which a tenement can be constituted. “Tenancy” in the definition includes lease and short term tenancy. Occupation under any licence is also rateable.
Rateability of Plant and Machinery Section 8 of the Rating Ordinance on “tenements containing machinery” was introduced in 1973. It stipulates which types of machinery are considered as part of the tenement. Section 8A was added into the Rating Ordinance in 1991 to deem certain plant items rateable in their own right. It provided that where any land, building or structure was occupied by any person by means of any plant, such land, building or structure shall be deemed for rating purposes to be a separate tenement, whether or not such land, building or structure is otherwise a tenement. “Plant”, as specified under Section 8A, included cables, ducts, pipelines, railway lines, tramway lines, oil tanks, settings and supports for plant or machinery.
Rateability of Advertising Signs Rateability of advertising signs was provided in Section 9 of the Rating Ordinance, first introduced in 1973. The gist of the section is to regard the right to use land for exhibiting advertisements as a separate tenement (and thus rateable) and to include the value of the advertising station in the assessed rateable value of the land. As such, all advertising signs are rateable either as separate tenements or by adding their value to the “host” tenements at which they are situated.
Liability for Payment Both the owner and the occupier are liable for rates. In practice, this will depend on the terms of the agreement between the owner and occupier of the property. In the absence of any agreement to the contrary, liability of rates rests with the occupier.
Apportionment of Rateable Value and Rates Payable An owner or occupier may apply to the Commissioner of Rating and Valuation (the Commissioner) for an apportionment of the rateable value of a single tenement which comprises several tenements valued together under Section 10 and the Commissioner shall give notice of the apportionment in the specified form. This provision for apportionment may assist the ratepayers or owners in determining the respective share of rates for each of the owners or occupiers of the single tenement.
The apportionment of the rateable value does not constitute a separate rating assessment made under the Rating Ordinance. The single tenement and its rateable value remain as entries in the valuation list. Thus, an objection can be made only to the rateable value of the single tenement.
Rates Relief and Concessions Rates relief and concession schemes were introduced in the past to cushion the short term impact of increases in rates payment whilst preserving the long-term equity and integrity of the rating system.
For example, prior to the implementation of annual revaluations in 1999, long periods between general revaluations had resulted in large increases in rateable values, giving rise to a very significant increase in the rates burden and causing hardship to ratepayers. To soften the impact of these increases, a Public Revenue Protection (Rating) Order was made in March 1977 to limit the increases in the amount of rates payable for the years 1977/78 and 1978/79 to not more than one third of the amount of rates payable for the preceding year. This measure was also known as the “Rates Relief Scheme”.