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Proposal for GST denounced as a 'sugar-coated poison'

Dennis Eng

Lawmakers, traders and unions say the government's plan to widen tax base will hit business hard

Shops fear the worst if a 5 per cent tax on goods and services is brought in. They say it will hit business hard and erode already razor-thin profit margins.

'The GST's impact on the retail industry is actually quite complicated,' said Shirley Chan Suk-ling, vice-chairwoman of the Hong Kong Retail Management Association.

'It involves a substantial increase in operating costs, such as extra staff for handling tourist refunds, accounting and administration. A GST also hurts consumer sentiment. The industry will definitely face hardship.'

Kowloon City district councillor Lee Kin-kan, of the Hong Kong Association for Democracy and People's Livelihood, described the tax as 'sugar-coated poison'. It would worsen the gap separating the wealthy from the poor and destroy Hong Kong's competitiveness.

'Even now there are many consumers spending their money up north,' Mr Lee said. 'A GST will only add to unemployment in the goods and services sector and destroy Hong Kong's reputation as a shopping heaven.'

Members of the Coalition Against Sales Tax, chaired by Liberal Party lawmaker Vincent Fang Kang, reiterated that they preferred increasing salaries or profits tax to a levy on goods and services - even though the government is seeking to broaden the tax base rather than raise extra revenue.

The coalition protested outside the Legislative Council building yesterday and delivered protest letters to Financial Secretary Henry Tang Ying-yen.

'I do not think this is the right time to have a GST and I do not think the government needs a GST,' Mr Fang said.

'I do agree that we have a narrow tax base but this system has operated for the past 50 years and we have a huge fiscal reserve, so I do not think a narrow tax base is bad for Hong Kong. If we have a GST we will drive a lot of business away from Hong Kong to Macau and Shenzhen, which we do not want to see.'

Coalition member Homer Yu Sau-ning, the honorary chairman of the Cosmetics & Perfumery Association of Hong Kong, warned business in his industry would drop by at least 15 per cent as a result of the tax.

He said most retailers' profit margin was between 3 per cent and 5 per cent, which could easily be wiped out by a 5 per cent GST if businesses did not register for the proposed tax.

Under the proposals unveiled yesterday, companies with annual turnover of $5 million or less would not have to register for GST, meaning they would not have to levy the tax on sales.

However, they could choose to sign up, since companies will need to register for GST to recover the sales tax they pay on raw materials, rent and other overheads.

To address the import/export trade's concerns about cash flow, the government proposes allowing businesses to defer or suspend payment of GST on imports. Approved importers could defer payment by three to seven weeks.

The government proposes reducing duty on alcohol by the same amount as the GST levied on each purchase, to offset the new tax. Wine retailers welcomed the move but called for alcohol duties to be lowered even more.

Nelson Chow Kwok-ming, chairman of the Hong Kong Sommelier Association, said the GST and alcohol duties were separate issues and the government still needed to look at cutting duties.

The Coalition Against Sales Tax is planning to lobby small and medium-size businesses.

Mr Fang said supporting shops would be identified by a 'No GST' sticker and would hand out questionnaires about the tax to shoppers this Christmas. The coalition also would seek the views of mainland visitors on a GST over Lunar New Year.

Ho Hei-wah, director for the Society for Community Organisation, said 11 groups, including political parties, retail groups and non-governmental organisations, were backing the coalition.

Chung Chung-fai, chairman of the Confederation of Trade Unions, said the tax would be an unmanageable burden for the 400,000 people earning less than $5,000 a month since it would cover all basic necessities.

Mr Chung urged the government to put the plan on ice.

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