John Tsang’s pragmatic budget
It is encouraging to note that Financial Secretary John Tsang Chun-wah has put more emphasis on positioning Hong Kong for economic development in this year’s budget, particularly in developing the financial service, trading, logistics and tourism industries.
With this clear focus and vision, we look forward to more concrete measures. We welcome the fact that the government has accepted Deloitte’s suggestions to extend the profits tax exemption for offshore funds and increased the deduction ceiling for self-education expenses from HK$60,000 to HK$80,000. We highlight some of our comments and recommendations as follows:
In line with the National 12th Five-Year Plan, which specifically states our country’s support for Hong Kong’s development as an offshore renminbi business centre and an international asset management centre, the financial secretary has allocated more than six pages in this year’s budget to measures to enhance Hong Kong’s competitiveness in developing the financial services industry, in particular fund and asset management business.
In the fund and asset management sector, several legal and tax legislation changes are proposed to provide a more flexible and attractive business environment. However, with stiff competition in attracting fund management businesses, mostly from Singapore, we believe that the government should consider further relaxation as well as tax incentives. For example, similar to Singapore, Hong Kong could introduce an onshore fund regime that provides exemption for a fund that is centrally managed and controlled in Hong Kong, given that it satisfies certain conditions. In addition, the government can provide preferential tax treatment for local fund managers; for example, to reduce the profits tax rate to 10 per cent on income derived from fund management services rendered in Hong Kong, provided certain conditions are satisfied.
While we welcome the relief measures proposed to ease the financial pressure on people’s livelihoods, including tax rebates on salaries tax and tax under personal assessment, increases in the basic and additional child allowances as well as the deduction ceiling for self-education expenses among others, we recommend tax relief measures to address the surge in the cost of medical expenses, especially in view of the issue of an ageing population, which is also highlighted in the budget. For example, the government can introduce salaries tax deductions for medical insurance premiums and actual medical expenses incurred by taxpayers and/or their dependents and the deductible amounts could be capped at HK$20,000 for each taxpayer.
Deloitte has suggested the government allow tax deduction of stamp duty paid by Hong Kong resident home buyers on their principal residence, capped at HK$100,000. Further, home buyers could get a refund on the stamp duty levied on the first HK$4,000,000 of purchase consideration on the property used for their principal residence held for at least three years. These proposed measures, we believe, could effectively reduce the purchase costs incurred by home buyers and supplement the series of stamp duty policies currently implemented.
We consider the first budget of the current-term government pragmatic, with clearer industry positioning to enhance Hong Kong as a financial and logistics centre in the Asia-Pacific region. We look forward to more concrete measures and implementation plans.
Davy Yun is a Deloitte tax partner and Karen Chow is a Deloitte tax director.
