CY Leung policy address 2014

'Give the middle class tax breaks' urges Taxation Institute

Taxation Institute urges John Tsang to increase allowances for group left short in the policy address and to widen the city's tax base

PUBLISHED : Wednesday, 22 January, 2014, 4:34am
UPDATED : Wednesday, 22 January, 2014, 9:36am

Next month's budget should feature higher tax allowances and bigger deductions to make up for the fact the middle class got "nothing" from last week's policy address, the Taxation Institute said yesterday.

The institute, which represents 2,700 taxation professionals, also suggested that Financial Secretary John Tsang Chun-wah should consider reforms to broaden the tax base, including taxing luxury goods and introducing more green levies. The institute has submitted budget suggestions every year since 1980.

Pressure is mounting on Tsang to alleviate pressure on the middle class, a group Chief Executive Leung Chun-ying was accused of neglecting in his policy speech, while promising HK$10 billion in welfare and initiatives for underprivileged groups.

"The middle class has not received any tax incentives recently, so … we suggest that salary tax bands [the blocks of earnings subject to progressively higher tax rates] should be widened from HK$40,000 to HK$50,000," institute president Joseph Yau Yin-kwan said. "It will lower the burden on taxpayers, especially the middle class, while not narrowing our tax base."

The allowance for dependent parents and grandparents should rise HK$2,000, to HK$40,000, for each dependent aged 55 to 59 and HK$4,000, to HK$80,000, for those aged 60 or above, he added. An allowance of HK$100,000 should be introduced for those caring for parents aged 80 or above.

The institute said a survey of professionals and businesspeople in September and October found that 71 per cent of respondents felt the city's tax base was "too narrow", with a tax on luxury goods sales the most popular solution, favoured by 37 per cent. Green taxes, on things such as road traffic and waste disposal, were favoured by 33 per cent.

Just 40 per cent of Hongkongers pay salaries tax. A tax on goods and services tax has long been mooted to expand the tax base, but has faced fierce opposition.

Accountants' body CPA Australia also called for a comprehensive review of the tax system, in light of the huge increase in public spending in the policy address. It said a luxury-goods tax should be introduced as the first step towards a comprehensive goods and services tax.

Tsang warned last month that the city would have to expand its tax base or slip into a structural deficit as spending grew to deal with an ageing population.

Meanwhile, Hang Lung Group tycoon Ronnie Chan Chichung yesterday praised Leung's policy speech as a "good one", but revived his war of words with Tsang, saying he "should not be complaining about getting poor" due to welfare spending. Rather, Tsang had "spent on the wrong areas, such as offering funds for hospital renovation instead of simply adding new ones".

In July, Chan slammed Tsang as a "big sinner" for sitting on huge reserves of public money.