Time to review Hong Kong tax system, say accountants
Top accountancy firms are split on whether the city will slide into deficit next year, but they agree the tax base could be widened
Joshua But and Tony Cheung
Leading accountancy firms have suggested the government consider broadening the tax base given its growing expenditure and possible budget deficit in the coming years.
The top firms agree the city will record a hefty budget surplus worth tens of billions of dollars for the current financial year. But they are divided, to the tune of HK$100 billion, on the projection for 2013-14. The government's medium-range forecast last year estimated a surplus of HK$3.8 billion for 2013-14.
But Jennifer Wong Wan How-yee, a tax partner at KPMG China, said the next budget could go into the red because of the government's huge spending spree on infrastructure and relief measures in the next year. Wong said the government could be looking at a deficit of HK$45.9 billion by the end of March next year.
"Our forecast is not being pessimistic," she said, noting the new living allowance for elderly people would cost an additional HK$6.2 billion, among a list of new initiatives and increased capital expenditure.
Yvonne Law Shing Mo-han, a tax partner at Deloitte, took the opposite view, predicting a budget surplus of HK$55 billion. "We estimated GDP growth could reach 4 per cent in the coming year, as compared to 2.5 per cent for the current year," she said. "We cannot see a drastic decrease in revenue or significant increase in expenditure. Our prediction will be slightly better than the HK$50 billion this year."
So Kwok-kay, a tax partner with PricewaterhouseCoopers (PwC), was also expecting a surplus. He said the government's estimate for 2013-14 was conservative. "When the government estimates their revenue, they usually underestimate it - but rarely overestimate," he said. PwC was "cautiously optimistic" about the economy in the coming year, he said.
All three accountants agreed revenue from land and stamp duty would increase further in 2013-14, but said it might be necessary to review the tax system. "We might see a tax increase if the budget is in a deficit for several years," Wong said. "The government should take the chance to reconsider indirect taxes such as a goods and services tax [GST] to try to broaden the tax base."
The surplus forecast was backed by Taxation Institute council member Patrick Kwong Shu-wing, who put the 2013-14 figure at HK$20 billion. "The economy is unlikely to get worse in the next year. Given the extra spending, the government might still post a surplus," he said.
Financial Secretary John Tsang Chun-wah will announce the budget next Wednesday. He has been criticised in recent years for repeatedly underestimating the government's surplus, leading to questions about whether the administration is underspending.
In his budget last year, Tsang said Hong Kong would suffer a deficit of HK$3.4 billion in the 2012-13 financial year. PwC is now projecting a full-year surplus of HK$55 billion and said more accurate projection could boost the public's reception of the budget and improve long-range planning to tackle the city's "deeply rooted" social problems
On January 8, the firm forecast a surplus of up to HK$28.7 billion this financial year - the most optimistic assessment of the major accounting firms - but three weeks later, the administration said it was already seeing a surplus of HK$40 billion in the nine months to December 31.
PwC's So said since the fiscal reserve level was "very healthy", there should be much more room for the government to offer tax concessions and relief measures in the budget.