Donald Tsang

Wrong time to cut business tax, Tsang says

PUBLISHED : Wednesday, 04 January, 2012, 12:00am
UPDATED : Wednesday, 04 January, 2012, 12:00am


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Chief Executive Donald Tsang Yam-kuen says his government will not lower the tax rate on corporate profits, despite a double-digit rise in tax revenues last year.

His stance runs contrary not only to businessmen's expectations but also one of his own re-election promises, made in 2007.

However, in a Commercial Radio interview yesterday, he said he had fulfilled most of those election pledges.

Tsang said the 2008 'financial tsunami' and the likelihood of a global recession meant conditions were not right for cutting the tax.

He also acknowledged he had more to accomplish before he stepped down, including reviving the Home Ownership Scheme, as he pledged to do in his final policy address, in October.

Tsang, who leaves office on June 30, spoke as a government treasury report showed a 17 per cent year-on-year increase in revenue from taxes, rates and duties to HK$233 billion in the 2010-11 financial year, from HK$198 billion in 2009-10.

Profits tax revenue rose 26 per cent, from HK$72.6 billion to HK$91.4 billion.

Revenue from stamp duty rose from HK$42 billion to HK$51 billion, in part because of a special duty introduced last year under measures to curb property speculation.

In 2007, Tsang pledged to reduce the profits tax rate from 17.5 per cent to 15 per cent 'if economic and financial conditions allow'.

He announced in his policy address that year a cut to 16.5 per cent, the rate which prevails to this day.

A tax expert said the Tsang administration had earlier missed a chance to honour his promise and lower the burden on business.

'There was room for a reduction last year when the economy was less uncertain,' said Richard Chow Yeung-tuen, former president of the Taxation Institute. 'But the government ended up with some one-off benefits and a cash handout of HK$6,000 to the public instead.'

Commercial-sector lawmaker Jeffrey Lam Kin-fung, a government suppoter, expressed disappointment in Tsang's decision.

'[The business sector] expects the new administration to implement the reduction,' Lam said. 'We deeply believe the reduction would be beneficial to the investment environment of Hong Kong.'

By lowering the profits tax rate, he said, more businesses would be drawn in, and that could increase overall revenue. He said the government should prepare the city for an increasingly competitive regional business environment.

Financial Secretary John Tsang Chun-wah is due to announce his budget next month.

The treasury's net surplus dropped from HK$145 billion in 2009-10 to HK$96.7 billion in 2010-11, mainly due to the contraction of non-operating revenue, including the surplus in the Exchange Fund.


The investment loss, in HK dollars, reported by the Exchange Fund for July to September, marking its second-worst quarter on record