Experts see room for tax cuts

PUBLISHED : Saturday, 07 July, 2007, 12:00am
UPDATED : Saturday, 07 July, 2007, 12:00am

A reduction in profits and salaries taxes could be in store as new Financial Secretary John Tsang Chun-wah maps out his strategy for the coming five years, tax experts believe.

The career civil servant and former secretary for commerce, industry and technology is starting the administration's third term with a buoyant economy and a government flush with cash. Fiscal reserves stood at a healthy HK$374.2 billion at the end of May, while last year saw a HK$58.6 billion surplus.

'There is room for a reduction in direct taxes, given the large surplus and growing public pressure,' said Jennifer Wong How-yee, a tax partner with accountants KPMG.

She expects the profits tax rate to fall to 16 per cent from 17.5 per cent, and the standard 16 per cent tax rate on salaries to be cut to 15 per cent.

Mr Tsang would have to consider the need to enhance the city's competitiveness when profits tax rates were falling worldwide, including on the mainland, Mrs Wong said. Singapore had said it would lower its profits tax rate to 18 per cent from 20 per cent next year.

Hongkongers have been promised tax rates will fall to 15 per cent if conditions allow. During the Asian financial crisis in 1998, then-financial secretary and current chief executive Donald Tsang Yam-kuen lowered the profits tax rate to 16 per cent in a bid to restore competitiveness as a business hub.

'Tax rates were lowered to help stimulate the economy. Now, it's about reforming the economic structure,' said Marcellus Wong Yui-keung, a tax partner with PricewaterhouseCoopers.

A cut of 1 percentage point in the profits tax rate was estimated to cost the government about HK$4 billion a year, while a similar cut in salaries tax would cost between HK$700 million and HK$800 million, Mrs Wong said.

The closeness between the two Tsangs would mean a fiscal philosophy that was more in sync with the chief executive's policies on social issues such as health care, Mr Wong said.

The previous financial secretary, Henry Tang Ying-yen, tended to take a more short-term approach to managing public finances.

However, Richard Chow Yeung-tuen, president of the Taxation Institute, warned that rate reductions could be lower than expected if the economy failed to perform.

Sunnier pay day?

Hong Kong has been promised tax rates will fall if conditions allow

The standard 16 per cent tax rate on salaries would be cut to 15%