• Fri
  • Nov 28, 2014
  • Updated: 8:32pm
NewsHong Kong
BUDGET

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

PUBLISHED : Wednesday, 20 February, 2013, 12:00am
UPDATED : Wednesday, 20 February, 2013, 5:32am

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."

We estimated GDP growth could reach 4 per cent in the coming year ... 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.

 

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This article is now closed to comments

joyalsofi
" '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.' " By all means, these are the people who want place the burden on the little guy and tax goods and services or value added taxes. These take a much higher percentage of poor people's income and are known as regressive taxation. How about a financial transaction tax such as was passed in the past month or so in France? For a change, let's make those with the money pay for the extensive infrastructure and regulatory system that keeps them in place.
asiaseen
Indeed, but much more preferable would be an income tax, rather than the present salaries tax, so that those billions of dollars in dividends and other exempted sources come into the net.
henleyhk
I couldn't agree more. It has always seemed iniquitous to me that in HK working people's incomes are taxed through salaries tax, while the idle rich enjoy their dividends and interest tax free. In the interests of social justice, if nothing else, salaries tax should be replaced by an income tax covering all sources of income.
icwu
It IS time to review our tax system n be less dependent on our property sector.
aplucky1
omg
there MIGHT be a deficit six years from now, so lets through the baby out with the bath water
John Adams
I find it somewhat ironic that our govt financial wizards can estimate 2013-14 surplus accurate to $0.1 Billion ("$3.8 Billion") when in every recent year their estimates have been wrong by several tens of Billions .

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