Sales levy would stabilise revenue and bring flexibility, says the IMF
The International Monetary Fund is backing the government's proposed goods and services tax, saying it would lead to more stable revenue and give the financial secretary leeway to proceed with more relief measures.
'We encourage the government to press ahead with its work towards the implementation of a goods and services tax,' the IMF's resident representative in Hong Kong, Paul Gruenwald, said.
In his budget speech, Henry Tang said a government committee had studied the tax and a public consultation would be conducted later this year. The government said overseas experience showed it took about three years for the tax to be implemented, suggesting 2009 as the earliest possible date for the levy to be introduced.
The Taxation Institute also welcomed the move but president Li Man-fai criticised the government for dragging its feet over taxes aimed at promoting environmental awareness. He urged the administration to launch a study on proposed 'green taxes' instead of merely advocating the 'polluter pays' principle, which had been mentioned in the past two budgets.
'It's not enough to keep talking about it and say the government is considering it. At this rate, eight or 10 years could go by and nothing would happen,' Mr Li said.
He also called on the administration to tackle 'big-picture' issues other than the broadening of the tax base. 'We see no indication of what the government might do to provide incentives to a broader spectrum of the business [community],' he added.
Richard Chow Yeung-tuen, a vice-president with the institute, said that while modest increases in tax allowances for dependants came in lower than expected, 'the government realises that it still has a structural deficit problem to fix and probably did not dare to do too much'. The government is proposing a one-third increase in child allowances to $40,000.
Mr Gruenwald said: 'Structural problems related to the operating account deficit and narrow revenue base remain to be tackled.' The government should keep a medium-term focus, he said.
