Hong Kong needs to halve corporate taxes and stop infighting to stay competitive in the long term: report

Tax rate suggestion in study commissioned by Regina Ip’s think tank more aggressive than that suggested by next Hong Kong leader Carrie Lam

PUBLISHED : Thursday, 06 April, 2017, 10:10pm
UPDATED : Thursday, 06 April, 2017, 10:10pm

A Hong Kong report has suggested that halving corporate taxes and putting an end to internal conflicts are key measures to reverse an alarming decline in the city’s long-term competitiveness.

The corporate tax target in the report, commissioned by think tank Savantas Policy Institute, is even more aggressive than the plan proposed by Hong Kong’s next leader Carrie Lam Cheng Yuet-ngor. The think tank is established by unsuccessful chief executive candidate Regina Ip Lau Suk-yee.

The report sought a halving of corporate taxes to just 8.25 per cent, while chief executive-elect Lam planned to enforce a two-tier tax system that would result in a tax reduction from 16.5 per cent to 10 per cent for firms with an annual profit of less than HK$2 million.

“As Carrie Lam said, both Hong Kong and Singapore are similarly small economies, but we are lagging behind,” Ip said.

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“As well as looking at the low growth rate, we need to look at long-term competitiveness which is very important.”

Professor Ho Lok-sang, who led the research project, said that “Hong Kong’s current situation was worrying”.

“We have data showing Hong Kong’s competitiveness is in decline,” said the dean of the Faculty of Business at Chu Hai College of Higher Education.

He added that it was alarming that the number of regional headquarters set up in Hong Kong started to decrease last year after years of slowing growth.

“In contrast, Singapore is aggressive attracting multinationals to set up regional headquarters there.

“Globally, everyone is lowering taxes, and there are many tax benefits. Hong Kong can no longer use its 16.5 per cent tax rate as a way to attract investment,” the professor said.

He added that while the official tax rate of the United States may be much higher than that of Hong Kong, a report found the ”effective” tax rate applied to many companies was much lower. For example, American multinational General Electric was taxed just 3 per cent, according to the 2013 report.

Ho said that the tax issue was a key consideration for corporations when deciding on regional headquarters, and for Hong Kong to regain its competitiveness, it should halve its corporate tax to 8.25 per cent.

Besides the micro and macro matters – seen as “hard” issues – Regina Ip also said “soft” power was very important.

“The question is whether the city can find consensus, especially [after] the past few years. Can we embrace the same values and move ahead?”

Professor Ho said the lack of a “consensus” was a major weakness for the city, adding that: “The infighting is hurting our long-term competitiveness. If this continues, then our future is over.”

During a forum after the report’s release, Dr Aaron Shum, a jewellery businessman who serves as secretary general of the Hong Kong Business Community Joint Conference, said government officials should learn from Dubai and be more flexible in solving the city’s problems.