Tax rebate ceiling likely to be cut to just HK$10,000

Financial secretary John Tsang Chun-wah will announce in next Wednesday's budget that more than HK$10 billion will be injected into the Community Care Fund to finance initiatives to help the underprivileged and alleviate the poverty gap.

But the city's 1.5 million taxpayers may have to lower their expectations for relief measures, as the salaries tax rebate ceiling will be less than the HK$12,000 granted last year, according to a government source.

The move to cut the rebate ceiling will go against the wish lists of major political parties and accountancy firms, which have in recent weeks urged Tsang to lift it amid a hefty budget surplus to help the middle class.

A source familiar with the budget said the size of this year's sweeteners would likely be smaller than last year's.

Last year, Tsang presented an HK$80 billion basket of measures that included a salaries tax rebate of up to HK$12,000, an increase from HK$108,000 to HK$120,000 in basic allowance, and a HK$1,800 electricity subsidy for 2.5 million households.

For this budget, the government is likely to opt for a basket of measures implemented before - including electricity subsidies for households - but the tax rebate is likely to be cut back to below HK$12,000, the source said.

"From experiences in the current financial year , a substantial proportion of taxpayers did not use up the HK$12,000 tax rebate because it exceeded the amount of taxes they paid," he said.

"If the salaries tax rebate is adjusted a bit downwards, the loss of revenue for government coffers will be smaller while not so many taxpayers will be affected."

And despite calls for Tsang to offer relief to the so-called "n-nothings" - a term for those who get no help from the government - he is unlikely to dish out sweeteners for them in the budget.

There were other mechanisms such as the Community Care Fund to help them, the source said.

More than HK$10 billion will be injected into the fund, which will be used to finance initiatives endorsed by the Commission on Poverty to help underprivileged groups and to narrow the poverty gap, he said.

Meanwhile, Ernst & Young forecast that the government could announce a budget surplus of HK$57 billion next week, the result of an increase in tax revenue, stamp duty and land premiums.

Regional managing partner Agnes Chan Sui-kuen said the government should consider offering a one-off tax rebate of 75 per cent of salaries tax and profits tax capped at HK$18,000, and also issue the third batch of iBonds.

"We believe it is better to offer tax incentives instead of a universal cash layout," she said.