Hong Kong should make better use of its tax system to raise its competitiveness as a regional business hub and attract more foreign investment.
'Hong Kong's tax system is quite outdated in the sense that [its] skeleton is still based on old thinking: Hong Kong as a manufacturing city and not a financial services hub,' says Fergus Wong, co-chairman of the tax sub-committee at the Association of Chartered Certified Accountants Hong Kong.
'The government needs to update the system and make it more relevant for today's environment, taking into consideration the shift of economic power from west to east, changes in the tax regimes of neighbouring countries, and Hong Kong's own fundamental economic changes.' The Hong Kong system has, since its launch in 1947, been revised three times, with the last revision in 1976.
'While our business community has adapted to the monumental shift in the global economy, our tax system has remained largely the same for the past 35 years, and we believe the time has now come to undertake a comprehensive review,' says Loretta Shuen, the taxation committee chairwoman at CPA Australia, Greater China.
Many countries in the region, including the mainland, Singapore and India, have diligently updated tax rules in recent years to cope with changing global economic conditions, she says.
Areas that need to be addressed in Hong Kong include an overall deduction in profits tax for small and medium-sized enterprises (SMEs) and listed corporations, and better tax incentives to encourage more companies to invest in the city.
CPA Australia has recommended offering a reduced tax rate and a tax holiday to foreign companies setting up regional headquarters in Hong Kong. 'There are about 1,340 foreign companies with their regional headquarters in Hong Kong. This number is very small compared with the total number of businesses in Hong Kong,' Shuen says.