Economic crisis prompts rethink on tax policy

PUBLISHED : Friday, 16 January, 1998, 12:00am
UPDATED : Friday, 16 January, 1998, 12:00am

The recent economic slump is believed to have forced the Government to reconsider proposals to cut corporate tax by 1.5 percentage points to 15 per cent.

The flagship reform has the backing of business and would be a key initiative in the Government's drive to keep the territory at the forefront of low tax regimes.

Industry sources said the severity and suddenness of the economic downturn had caused a review of all measures that would cost revenue.

Supporters of the reform claim a forecast $2.7 billion loss of revenue would be compensated for by increased investment.

Hong Kong's competitors for the title of regional business centre have cut their corporate tax rates during the past five years.

While the SAR's rate has remained fixed at 16.5 per cent, Malaysia's has dropped six percentage points to 28 per cent and Singapore by one percentage point to 26 per cent.

A recent survey by management consultant Arthur Andersen found that nearly 70 per cent of businesses backed a move to cut the tax to 15 per cent.

Business has said that a cut would help to offset rising interest rates and could be a suitable fiscal strategy in a downturn.

They have also said it is important for Hong Kong to maintain its business-friendly image and competitiveness and to attract more investment.

Critics of the move have claimed that Hong Kong's tax rate is already low, its system simple and further tax cuts may not help.

A Government spokesman was not available for comment.




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