HONG KONG: The Hongkong and Shanghai Banking Corporation urged the incoming Hong Kong government to review the current tax regime, which it described as outdated, to improve the local business operating environment. “Hong Kong can no longer rely on a low and simple tax environment to attract foreign investment. Compared to 15 years ago, there are more jurisdictions that have a lower tax rate than Hong Kong while Singapore’s effective tax rate is at a similar level with the SAR,” said HSBC Asia Pacific adviser George Leung Siu-kay. He said he expected the government to record a fiscal surplus of more than HK$80 billion this fiscal year, and suggested the new fiscal budget should reduce relief measures in favor of reserve resources to counter unforeseen volatilities this year. He buttressed this recommendation, saying Hong Kong has approached full employment.
Leung said he expects the US to raise interest rates by one to two times this year, both of them coming in the second half. But Hong Kong may not necessarily track the pace of the US rate hike, thanks to adequate capital in the city, he said. Meanwhile, Deloitte has forecast the 2016-17 budget surplus at HK$85 billion, up from HK$11.4 billion a year earlier, boosting fiscal reserves to HK$927.9 billion by the end of March. But it expects the surplus to narrow to HK$55 billion in fiscal 2017-18 in the face of a challenging business operating environment weighed down by a global economic downtrend.
Deloitte expects revenue from salaries and corporate taxes, as well as land sales, to fall in the next fiscal year, while government spending may increase. It suggests stamp duty to be reduced by half for permanent local residents who are buying homes for the first time. This move is aimed at easing pressures on them after the heightening of home cooling measures. To support small- and medium- sized companies, the government should lower the corporate tax by 0.5 percentage points to 16 percent and introduce a “two-tier” progressive profits tax, Deloitte said. It also suggested the grant of tax benefits to high-technology and environmental protection industries. Deloitte said the government should restart a study on the possible introduction of a sales tax to expand the SAR’s tax base. But it cautioned against introducing any sales tax soon as it could undermine the local retail sector which continues to reel from sluggish consumer sentiment.
