Jake's View

Hong Kong foots the bill as Beijing tops up its tax take

Why are we paying to enforce a customs regime that benefits only the mainland?

PUBLISHED : Tuesday, 02 April, 2013, 12:00am
UPDATED : Tuesday, 02 April, 2013, 6:55am

An elite Customs team has been set up to tackle smuggling syndicates who are making millions of dollars a day shipping container loads of illegal goods between Hong Kong and the mainland.

SCMP, March 30


Why? It's a simple question, but it needs a few elements of definition before we answer it or, rather, before we ask whether there is a valid answer at all.

Let us start with the nature of the goods being smuggled, which, according to our story on the Customs and Excise Department's new anti-smuggling squad, "include precious metals, animal furs, seafood, computer hard disks and frozen meat".

This list immediately tells us that the smuggling involved is not so much between Hong Kong and the mainland as from Hong Kong to the mainland. Customs and Excise levies no duties on these goods here, and thus there is no point in smuggling them into Hong Kong.

The sorts of good we smuggle to Hong Kong from the mainland include dirty diesel fuel, cigarettes, illegal drugs and Communist Party propaganda. Okay, we took that last item off the list some years ago, although many people still think it was a mistake to do so.

But this highlights why these goods can only be obtained here in smuggled form. We ban or restrict them because we find them objectionable, not because we want to raise money by taxing imports of them.

And because we find them objectionable, we have long given Customs and Excise the task of enforcing our restrictions on them. If it were smuggling of goods into Hong Kong that now concerns us, we wouldn't need a new Customs team.

In contrast, the point of smuggling goods from Hong Kong to the mainland is to get around mainland duties, which have been imposed purely to raise public revenue for Beijing.

It can hardly have been done because people on the mainland consider the goods objectionable. Computer hard disks are one of the mainland's star exports, and smuggled frozen meat, while it may not have passed Hong Kong health checks, has still to be much safer than the pork soup that residents of Shanghai get from their taps at present.

Thus, what we are talking about in this latest anti-smuggling drive is an offence against someone we all love to pieces - the friendly local taxman. You, dear reader, have never sought to give him less than the full measure of what he demanded from you, have you? And if the thought did ever cross your mind, it was only your sense of public duty that made you forbear, isn't that so?

Consider in addition the inequitable nature of these tariffs. We generally consider graduated income tax a good thing. The poor not only pay less tax than the rich do but also have a lower tax rate.

With import duties on everyday goods, this goes the other way. The retail price of legally imported frozen meat goes up with the duties levied on it, and the poor pay as much per serving of it as the rich do.

But because this amounts to proportionately more of the income of the poor, they in effect have been taxed at a higher tax rate than the rich. Import duties are a regressive tax. People who smuggle goods to get around them may be breaking the law, but they also help narrow their society's income gap. Do you really find this objectionable?

And let's remember that we are not talking of our own friendly local taxman in this case but of the mainland's. If the mainland wishes to restrict imports for reasons that would never lead us to do so in Hong Kong, why should we bear any of the enforcement cost of these measures?

We certainly will not benefit from them in any way. Hong Kong's economy has historically depended on doing what the mainland cannot or, for reasons of public policy, will not do. We make our money by open trade and choke our economy by measures that restrain trade.

At the very least, if we are going to provide enforcement services to help Beijing fleece more money out of imports to the mainland of ordinary goods, we should present Beijing with the full bill for these services.

It's Beijing that benefits. Let Beijing pay.