15 per cent stamp duty
To rein in the city's runaway housing prices, Hong Kong's Financial Secretary John Tsang Chun-wah announced an additional 15 per cent stamp duty on non-permanent-resident and corporate buyers starting from October 27, 2012. The move prompted speculation over the effectiveness of taxation on the real estate market and criticisms that Hong Kong was turning away from its roots as a free market economy in favour of a more protectionist market environment.
Property cooling measures unfair to locals, Hong Kong lawmakers say
Lawmakers call on government to back down on new stamp duty rules and ask that residents to be exempt from corporate taxes
Housing officials are facing mounting pressure to scale back an anti-speculation measure that seeks to cool the market by taxing corporate property buyers more than private buyers.
At the Stamp Duty (Amendment) Bill 2012 committee meeting yesterday, legislators urged the government to allow companies set up by Hong Kong permanent residents to be exempted from the new buyer's stamp duty introduced last October. The rule demands overseas or corporate buyers of local properties pay 15 per cent of the price as tax on top of the existing stamp duty and a special stamp duty.
One of the most vocal critics of the measure, legislator Abraham Razack, who represents the real estate sector, said it discriminated against those who opted to hold properties through companies. "Hong Kong people should be free to choose how they own flats. It is unfair to punish those who want to own flats through companies," Razack said.
He hinted that the measure could be unconstitutional as it might breach the Basic Law stating all Hong Kong residents are equal before the law.
Razack proposed returning the tax to local corporate buyers if they did not resell the property or change ownership of the shares of the company within three years of the purchase.
It is common in Hong Kong for people to own flats through holding companies. Some speculators use shell companies to buy properties and then sell them in the second-hand market through a share transfer. The transaction would then be considered a company takeover.
Committee deputy chairman James To Kun-sun, of the Democratic Party, agreed with Razack. He said: "Unless you tax all Hong Kong people the buyer's stamp duty, overseas speculators can still ask locals to help them buy and sell flats."
At least 15 committee members declared that they owned properties, held properties through companies or helped clients handle property transactions.
Secretary for Transport and Housing Professor Anthony Cheung Bing-leung argued that any exemption that could weaken the effectiveness of the measures would not be advisable.
Lawmakers also urged the government to exempt charities from the buyer's stamp duty. They were, in general, satisfied that such groups would not take part in speculation.
Since the anti-speculation measures were announced in October last year, they have had a notable impact on transaction volumes and prices have started stabilising.
Flat prices rose about 2.7 per cent during the first two months of this year, but the rate fell to 0.4 per cent in April, a month after the government introduced a second round of anti-speculation measures.