Tampering with tax system a risky business

PUBLISHED : Saturday, 12 July, 1997, 12:00am
UPDATED : Saturday, 12 July, 1997, 12:00am

I disagree with J. Lau (letter headlined, 'Make short-term volatility a thing of the past', South China Morning Post, July 7), who said that capital gains tax is the answer to curbing speculation.

In most Western developed countries, capital gains tax is a tax on the increase in the capital value of real property which hits a seller even after years of owning the property.

It has no anti-speculation effect, but is just a way of imposing more tax on the individual by government. Hong Kong owes its success largely to a low-tax system and a non-interventionist policy by the Government. The most important difference between Hong Kong and other developed countries which do not enjoy Hong Kong's economic success is that in these countries working residents have their income and incentive to work taxed away by all sorts of taxes and duties.

Imposing an additional tax on property deals will not stifle speculation as the speculators will add the extra tax on to the sale price as an added expense.

In the early 1990s the Government introduced the payment of stamp duty on sale and purchase agreements instead of assignments. That was supposed to stifle speculators. In reality, the cost was passed on to the end-user by jacking up the purchase price even further. It is the ultimate purchasers who get penalised in the end. I would be very wary of supporting any type of tampering with our tax system as we may get more than we bargain for. We should never forget that Hong Kong works best under a low tax environment.

Who would want to follow other so-called developed countries where both the tax rate and unemployment rate are high? Singapore introduced some form of capital transfer tax whereby the tax is imposed on a property transfer within two or three years of purchase. Singapore's set-up is totally different from Hong Kong's. The majority of the population live in decent public housing provided for by the government. There is not the acute housing shortage that we face in Hong Kong. Singapore's economy and government policies are totally different from ours.

Curb speculation by all means by increasing land supply, but to think that imposing additional tax would be the solution is mistaken.

W.S. WONG New Territories