Calls to help poor via tax subsidies

PUBLISHED : Thursday, 21 June, 2012, 12:00am
UPDATED : Thursday, 21 June, 2012, 12:00am


The tax system could be reformed to increase the incomes of poor families and spare them the stigmatising effect of applying for handouts, say two members of a committee to tackle poverty.

The decades-old Comprehensive Social Security Assistance scheme has been criticised as a rigid mechanism that leaves out many needy people who earn too much to fall under the safety net. Some jobless households would also prefer not to have to apply for funds in order to avoid negative stereotyping.

'If their income cannot satisfy their needs, there should be some sort of subsidy,' said Christine Fang Meng-sang (pictured), chief executive officer of the Hong Kong Council of Social Service, yesterday in a radio programme, referring to what she called 'negative income tax'.

There were 430,000 CSSA recipients, as of May, according to the Social Welfare Department.

On Tuesday, chief executive-elect Leung Chun-ying said he did not intend to bring down the income of the wealthy to assist the poor.

Tax credits are already used in some areas of Europe and North America, which subsidise the poor by channelling income tax to them, although it is controversial due to reports of abuse.

In the United States, the concept of an 'earned income tax credit' system has been incorporated into the tax regime, whereby the working poor can reduce their tax liability or get refunds from the government. According to local reports, the EITC programme led to nearly 30 million taxpayers receiving tax refunds averaging US$2,240 last year.

The president of the Hong Kong Taxation Institute of Hong Kong, Philip Hung, said that reaching out to those in need, most of whom do not pay taxes, under such a mechanism would be difficult. 'It is difficult to spot them. If it is done through applications, there must be a way to verify [the need],' he said, adding that administrative costs for such schemes would inevitably be high.

He said that while it remained unclear whether eligible recipients would receive subsidies or get a rebate from their previous tax payments, businesses may feel the scheme is unfair since they cannot get tax rebates when business is bad.

Hung hoped the poverty commission would invite not only welfare activists but also business representatives as well as professionals in order to provide a more balanced picture of how the poor can be helped.

Leung vowed at the weekend to revive the anti-poverty commission as soon as he takes over. It means resurrecting an initiative his electoral rival, Henry Tang Ying-yen, presided over from 2005 to 2007.

The only business representative on the committee, Henry Cheng, chairman of New World, was a late-joining supporter of Leung in the chief executive race. He initially supported Tang but switched sides for 'unity' reasons, his aides said.

According to the Census Department, the majority of workers do not pay tax while 80 per cent of the lowest taxpayers contribute just 10 per cent of total salary and property tax revenue.

With the majority of the city's households not paying tax, another committee member, Law Chi-kwong, said the government must draw a clear line to define where to draw the line under which workers would be assisted by 'negative tax schemes'. This line would be the de facto poverty line, he added.

On Monday, government statistics revealed that the city's wealth gap had reached a 30-year high, according to the Gini coefficient, a globally recognised measure of inequality.