Corporate tax cut back on agenda but unlikely to happen

PUBLISHED : Saturday, 19 February, 2011, 12:00am
UPDATED : Saturday, 19 February, 2011, 12:00am
 

An influential think tank is calling for a reduction in corporate profits tax as Financial Secretary John Tsang Chun-wah prepares to give his budget address next Wednesday.

The Bauhinia Foundation Research Centre, which is considered aligned with Chief Executive Donald Tsang Yam-kuen, put the idea back on the agenda yesterday.

Donald Tsang's re-election platform in 2007 pledged to reduce the corporate profits tax rate to 15 per cent from 17.5 per cent. It was cut by one percentage point in the 2008/09 financial year. This will be the government's penultimate budget before its term ends in June 2012.

The think tank put forward the proposal as part of a list of recommendations which it said aimed to boost the city's competitiveness while curbing inflation and stabilising property prices.

But given the growing public resentment over the widening wealth gap, civil servants and government allies said the tax cut was unlikely to be adopted.

The think tank argued the proposal would benefit Hong Kong. 'A reduction in the profits tax rate will help bolster the long-term competitiveness of Hong Kong,' said its chairman Anthony Wu Ting-yuk, who also heads the Hong Kong General Chamber of Commerce.

'Look at Singapore and Taiwan - their tax rates are close to ours but they offer many concessions. Our effective tax rate is in fact quite high compared with our neighbours.'

The centre also suggested a progressive tax system in which companies that earned profits of less than HK$1 million in a year would pay only 10 per cent tax. 'Such companies account for 70 per cent of all tax-paying companies in Hong Kong but they pay only 3.4 per cent of all the profits tax. Offering these businesses a tax cut will cost the government little but the effect will be big,' said Lau Ming-wai, co-convenor of the centre's budget study group. However, the present political atmosphere is likely to hinder Donald Tsang from carrying out his election pledge.

A government official, who spoke anonymously, said: 'It is not an appropriate time to cut profits tax now. Given the current anti-business sentiment, it is not inopportune to make such a move.'

Accountancy sector legislator Paul Chan Mo-po called the tax cut proposal 'crazy'. He said: 'Low earners make only HK$3,000 a month. Some families are living on about HK$100 a day. How can these business people ask the government to cut profits tax? Where's their conscience?'

Chan said Hong Kong's tax rates were competitive. He believed the legislature would not support any cut to corporate taxes. 'If John Tsang tables such a proposal next week, I will vote against the whole budget.'

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