The legislation in respect of the various levies applying to construction industry operations carried out in Hong Kong has been in force for a number of years. In this article, we provide a brief overview of the various construction levies in Hong Kong and a summary of: who is obliged to give the various notices in order for the amount of levy to be imposed; when such notice should be given; as well as the type of works for which notice is required. We also briefly cover objections and appeals to any levy imposed as well as the consequences of failure to give the required notices or make payment.
There are 3 different types of construction levy, being a:
- levy under the Construction Industry Council Ordinance (Cap. 587) ("CICO") under which contractor is liable to pay a levy to the Construction Industry Council ("CIC") at the rate of 0.5% of the value of its construction operations. The purpose of this levy is to support the work of the CIC;
- levy under the Construction Workers Registration Ordinance (Cap. 583) ("CWRO") under which contractor is liable to pay a levy to the CIC at the rate of 0.03% of the value of its construction operations. The purpose of this levy is to support the administration of the construction workers registration regime (this is additional to the levy under the CICO); and
- levy under the Pneumoconiosis and Mesothelioma (Compensation) Ordinance (Cap. 360) ("PMCO") and the relevant Assessment of Levy Regulations (Cap. 360A) under which contractor (or quarry operator as the case may be) is liable to pay levy to the Pneumoconiosis Compensation Fund Board (“PCFB”) at the rate of 0.15% of the value of its construction operations or quarry products. The purpose of this levy is to support the work and functions of the PCFB.
In all three of the levies cited, "construction operations" includes building works, street works, construction, alteration, repair, maintenance, extension, demolition or dismantling of any buildings or structures, supply and installation of fittings or equipment in any buildings or structures, as well as the repair and maintenance of electrical and mechanical works, etc., but excludes design, advice or consultation work.
Who is required to give notice?
The contractor and Authorized Person ("AP") are required to give notice to the CIC and PCFB in the prescribed forms1 independently at various stages of the works set out below.
Such obligations only apply to construction operations which are carried out under a term contract; or when it is reasonably estimated that the total value of the construction operations exceeds the levy threshold of HK$3 million.
When is notice required?
There are three principle notification points being:
- Upon commencement of Works
Within 14 days after the construction operations have commenced, the contractor and the AP shall each give notice by submission of the prescribed forms (specifying the tender submission date, estimated total value of the construction operations, etc.) and copy of the relevant contract documents.
- Upon certain payments made during construction operations
During the construction operations stage, contractors (but not APs) shall give notice by submission of the prescribed forms (specifying the date of interim/ final payment, value of the construction operations or the value of the stage or part of which the payment was made, etc.). This notice is accompanied by a copy of payment certificate issued by the AP and the relevant payment supporting documents.
The statutory reporting time limits vary depending on the type of construction contract:
- For non-term contracts, within 14 days after a payment is made to or for the benefit of the relevant contractor (whether in part/ stage or in full); or
- for term contracts, within 14 days after the last day of the month in which the payment was made.
- Upon completion of construction operations
Within 14 days after the completion of the construction operations or the stage thereof (as the case may be), the contractor and the AP shall each give notice of the completion of the works or the completion of each stage (other than those carried out under works orders).
The notices shall be in the prescribed forms (specifying the date of completion, value of the completed construction operations or the value of the completed stage, etc.) accompanied by the latest payment certificate and payment supporting documents.
What are the consequences of failure to give notice?
Failure to give notice within the required period (or any other period as extended by the CIC and/ or the PCFB) without a reasonable excuse is an offence and is liable to a fine on conviction: For the levy to the CIC, a contractor/ AP is subject to a fine at level 1 (HK$2,000) for failure to give the notice of commencement; and a fine at level 3 (HK$10,000) for failure to give the notice of payment or notice of completion. Whereas for the levy to the PCFB, failure to give any of the 3 notices is subject to a fine at level 2 (HK$5,000).
In addition, for a contractor failing to give notice of payment/ notice of completion, the CIC/ PCFB may, within the statutory time limits, issue a notice of surcharge demanding an additional sum not exceeding twice the amount of the levy payable. The contractor should pay the surcharge in full within 28 days upon receipt of the notice of surcharge to avoid prosecution.
How are the levies assessed?
Based on the documents supplied by the contractor/AP, the CIC and the PCFB generally will separately assess the amount of the levy payable and issue separate notices of assessment by registered post upon receipt of the notice of payment or the notice of completion. In particular, the assessment shall be a provisional assessment if the notice of payment is given in respect of an interim/ partial payment; or the assessment is made in respect of a stage or part of any construction operations or any other construction operations. In such circumstances, a final assessment will be made on the final payment for the construction operations; or the completion of those other construction operations (as the case may be).
Despite the obligations to submit notices, in the absence of such notices, the CIC and the PCFB are empowered to assess the amount of the levy payable, after the completion of the construction operations or the relevant stage or part. They are also entitled to demand additional levy (if appropriate) and defer the making of any assessment in the case of a term contract. However, such powers are subject to the statutory time limits specified in the ordinances.
What are the consequences for late payment?
Upon receipt of the notice of assessment, the contractor concerned should pay the levy in full within 28 days, failing which may lead to warning letter and eventually a penalty of 5% of the unpaid amount.
Additionally, if the contractor fails to make full payment of the levy, surcharge and/ or penalty within 3 months after the expiry of the specified period, the contractor is liable to pay, in the case of late payment to the CIC, a further penalty of 5% of the unpaid amount. For late payment to the PCFB, the contractor or quarry operator (as the case may be) shall be liable to pay a further penalty of $1,000 or 5% of the amount unpaid, whichever is the greater.
The CIC/ PCFB may commence a civil action for recovery of the outstanding sum in the District Court even if the amount due exceeds the financial limits on its civil jurisdiction. For PCFB, an action may also be brought at the Small Claims Tribunal if the amount due is within the Tribunal's jurisdiction (currently up to HK$75,000).
Can you object to or appeal levy assessments or levy surcharges?
Within 21 days upon receipt of the notice of assessment for levy or the notice of surcharge, a contractor may serve a notice of objection on the CIC or PCFB. The notice shall state the grounds of objection and be accompanied by all written statements and other documentary evidence relied upon by the contractor.
Notwithstanding the objection, the contractor is still liable to pay the levy, surcharge and/ or penalty in full within the required time pending the outcome. The CIC may waive or refund the levy, surcharge, penalty and/ or further penalty (in part or in full) if it considers it fair and reasonable to do so on a case-by-case basis.
All objections to the CIC's assessment will be referred to the Objections Board (an independent tribunal) and objections to the PCFB's assessment will be referred to its appropriate committee. The CIC/ PCFB will notify the objector in writing of the decision of the Objections Board/ committee within 28 days upon receipt of the objection.
Anyone aggrieved by a decision of the Objections Board/ committee may appeal to the Court within 30 days upon receipt of the notification of the decision. The appeal will only be heard when the disputed amount of levy or surcharge (including the relevant amount of penalty or further penalty) has been paid.
To facilitate notification and related communications, both the PCFB and CIC have enabled the submissions of levy notices electronically. Specifically, the CIC has launched the eServices platform allowing the contractors to view the eNotifications, payment notices, receipts and correspondences online. This will no doubt enhance the efficiency and cost-effectiveness of the levy assessment process especially in the time of the current pandemic.
The payment of levies are part and parcel of many construction operations in Hong Kong as a significant number of them are likely to have a total value over the levy threshold of HK$3 million. Nevertheless, the obligation is not to be taken lightly as a routine procedure as any oversight or inadvertence may lead to an unnecessary surcharge or penalty (or even potential court proceedings/prosecution). It is also particularly significant in the midst of Covid-19 because contractors should have paid the construction industry levy to the CIC during the period from 1 January 2019 to 19 February 2020 pursuant to the CICO in order to be eligible to apply for the Construction Industry “Anti-epidemic Fund” (Consultants, Contractors and Subcontractors).2