5pc minimum suggested for sales levy
Pundits debate pros and cons of proposed tax
A goods and services tax for Hong Kong should be set at a minimum 5 per cent in order to offset the high costs of its introduction, a tax expert said yesterday.
This would net the government an estimated $30 billion each year, with most coming from local spending and property transactions rather than tourists, PricewaterhouseCoopers tax partner Tim Lui Tim-leung said.
Financial Secretary Henry Tang Ying-yen has said a sales tax would be revenue-neutral. This would mean any net revenue would be offset by tax cuts elsewhere, the point being to broaden the tax base.
Mr Lui said: 'The government is evaluating a lot of economic scenarios to assess the impact of implementing a GST. It needs to convince the public that a GST brings benefits to the economy.'
He was speaking at a tax reform seminar organised by the South China Morning Post and the University of Hong Kong and sponsored by Citigroup.
Overseas experience in countries such as Britain, Singapore, Italy and Israel lends weight to the argument that a sales tax would inevitably be increased. Critics also cite significant compliance costs.
Citigroup's Asia Pacific GST counsel John Foster said in the case of Australia, there was 'an explosion in audits, rulings and case law' as the government cracked down on offenders.
Legislator Vincent Fang Kang, who opposes a sales tax, said the levy was unfair on lower-income earners, who had to set aside more of their wages to buy essentials.
'It's not fair that they should bear the brunt of the tax,' he said. 'I think a lot of complications and problems will arise from a GST. So why start something new, especially since the government has already reported a budget surplus.'
For the 10 months to the end of January, the administration recorded a surplus of $22.41 billion, reversing the original estimated deficit of $42.6 billion for the financial year.
Issues concerning tax rebates for tourists and implementation costs for small businesses are also expected to arise.
Former Hong Kong Monetary Authority deputy chief executive Tony Latter, a visiting professor at the University of Hong Kong's school of economics and finance, said exemptions for small companies under a threshold would be administratively easier for the government. Annual turnover of either $1 million or $5 million is being considered as a threshold.
