Tax reform essential says former finance chief

PUBLISHED : Tuesday, 21 January, 2014, 4:45am
UPDATED : Tuesday, 21 January, 2014, 6:39am

Hong Kong must consider widening its narrow tax base in response to the big payouts announced in Leung Chun-ying's policy address, an ex-minister for the treasury warned yesterday.

Frederick Ma Si-hang, who headed the Financial Services and the Treasury Bureau from 2002 to 2007, also warned that without addressing the tax issue, Hong Kong's competitiveness would be weakened if neighbouring economies in Southeast Asia lowered their profits tax to attract investment.

Ma's remarks came a day after Financial Secretary John Tsang Chun-wah warned that while the government could afford the increase in recurrent welfare spending proposed in Leung's policy speech, the day would come when surpluses turned to deficits, and fears public spending was rising too fast were "not without reason".

Speaking on a talk show hosted by Democratic Party chairwoman Emily Lau Wai-hing on the OurTV.hk website, Ma said: "I am not against helping the working poor and the young … but our tax base is really too narrow, if we continue to do nothing, I am worried that if Singapore lowers its profit tax one day … what is Hong Kong going to do, should we lower our tax rate too?"

Currently, the profit tax rate in Hong Kong is 16.5 per cent, while it is 17 per cent in Singapore.

Ma said that while Hong Kong was reliant on its income from profits and income taxes, which accounted for more than half of the government's revenue, the two taxes only contributed to about a third of the Singapore government's income.

"They can still support a [relatively] big government because they have a goods and services tax (GST) and an increasing income from betting duties," he added.

As treasury minister, Ma took part in a public consultation on a proposed GST; officials dropped the plan after fierce criticism.

He did not specify how to broaden the city's tax base, but said he also worried if Hong Kong failed to achieve universal suffrage in the 2017 chief executive election, any tax reforms could be postponed even further.

Last month, Ma said that former financial secretary Antony Leung Kam-chung "stands a chance" of becoming chief executive if he runs in 2017, renewing questions about whether Leung was trying to develop a higher profile in the city's public affairs by agreeing to join Hong Kong developer Nan Fung Group as its chief executive next month.

Ma also suggested that in the run-up to the 2017 chief executive election, candidates reveal some possible cabinet members, so the city's voters could vote for the candidate with the best team.