Luxury goods such as Louis Vuitton handbags, Gucci couture or Harry Winston jewellery watches could be taxed as a viable option to widen Hong Kong's narrow tax base.
Indeed, a 3 per cent tax on luxury goods should be introduced, according to a survey earlier this month of 200 Hong Kong-based members of CPA Australia, a global accounting organisation.
The proposal, which comes ahead of the government's budget announcement tomorrow, is not expected to affect low-income earners.
Loretta Shuen Leung Lai-sheung, chairwoman of the Greater China tax division of CPA Australia, said the proposed tax on luxury goods - roughly defined as branded consumer goods - would not deter mainland shoppers in the city. That's in view of the 30 to 50 per cent tax on imported luxury goods and the 17 per cent value-added tax on the mainland, she said. 'This is a far cry from the levy across the border,' Shuen said yesterday. 'Another reason they [mainlanders] shop here is because of the authenticity and high quality of goods.'
Sales of luxury goods in the city amounted to HK$50 billion in 2010. A 3 per cent tax on that amount would yield HK$1.5 billion in revenue to the government, Shuen added.
She said it was time for the government to look for long-term measures to improve the tax system. A review of the tax base was necessary, she said, because only one in five people in Hong Kong paid taxes in 2010, with most from the middle class.
Financial Secretary John Tsang Chun-wah, who is due to deliver his last budget speech tomorrow, wrote in his official blog on Sunday that a series of measures would be introduced to strengthen companies' ability to withstand economic downturns, as well as lifting spending on education, social welfare and health care.
Calls are also growing to broaden the city's tax base. For instance, accounting firms such as KPMG, Ernst & Young, and Deloitte have recommended a goods and services tax (GST).
Yvonne Law Shing Mo-han, Deloitte's national chief knowledge officer, yesterday said while there was a need to broaden the city's tax base, taxing luxury goods was potentially as controversial as introducing a GST. She said luxury goods must be clearly defined and that any tax rate must be carefully considered, because a definition that is too broad and a rate that is too high would affect the general public.
Conversely, a definition that is too narrow and a rate that is too low would not generate significant tax revenue.
'There are many issues needing to be addressed. For example, should we tax tourists or local shoppers or both? Should we tax local brands or foreign brands?' Law asked. 'A plasma TV is a necessity to many families, but it may cost tens of thousands of dollars. A branded handbag is a necessity to many ladies, but it may be a luxury to others. How should we define luxury goods?'
Chief executive candidate Henry Tang Ying-yen supported introducing a GST in 2006 when he was the financial secretary. However, the plan did not proceed due to public opposition.
CPA Australia expects the government to post a HK$58 billion surplus for the fiscal year ending on March 31.
Shuen said the government should also support small- and medium-sized firms by cutting their corporate tax rate to 13.5 per cent from the current 16.5 per cent.
Cutting the corporate tax rate to 13.5 per cent on SMEs would cost this amount, in HK dollars, in lost tax revenue, according to CPA Australia