‘Make bigger companies pay more tax to ease HK$5 billion revenue loss from proposed reform’

Researcher suggests increasing rates for profits after first HK$2 million under new tax system aimed at easing burden on SMEs

PUBLISHED : Thursday, 17 August, 2017, 2:14pm
UPDATED : Friday, 18 August, 2017, 4:09pm

The Hong Kong government can reduce the financial impact from its proposed profits tax reform, estimated to cost authorities about HK$5 billion in annual revenue, by imposing higher rates on companies making more than HK$2 million in profits, a senior researcher at a think tank founded by the city’s first chief executive Tung Chee-hwa has suggested.

The city aims to introduce a two-tier tax system, which would entail lowering the tax rate for the first HK$2 million of profits to 10 per cent, from the current 16.5 per cent, to help ease the burden on smaller businesses.

Our Hong Kong Foundation’s Stephen Wong Yuen-shan made the recommendation a day after financial services and treasury bureau chief James Lau said the city’s leader Carrie Lam Cheng Yuet-ngor was set to announce the two-tier tax system, which could take effect in the second half of next year, at any time. Lam had included the tax system proposal in her election manifesto.

Details of the plan could be announced before October, when the chief executive is due to deliver her maiden policy address.

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Wong, who was speaking on an RTHK programme on Thursday, said the government could consider a slight tax increase on profits after the first HK$2 million – to no higher than 17 per cent – to reduce revenue loss, as the ageing population could lead to long-term financial instability in the city.

“This will not only help small businesses, but will also make our tax system more progressive, achieving a balance for long-term government incomes,” Wong said.

Speaking on the same programme, Taxation Institute of Hong Kong council member Marcellus Wong Yui-keung said the government had not yet disclosed details such as whether the system would apply to big companies.

He said that in principle, it should not cover large corporations, and that the government should look into ways to prevent such companies from abusing the system such as by creating many subsidiaries.

Hong Kong set to forgo HK$5 billion in tax revenues after reform to ease burden on SMEs: finance chief

Such abuse could lead to an unexpected drain in tax revenue, he noted, adding that the government could also expand the tax base to make up for the shortfall.

The institute’s council member, who also sat on the last administration’s long-term fiscal planning working group, said ageing would slow down economic development and lower government revenues, while resulting in more spending, triggering a “structural deficit”.

This did not mean that the government should stop spending altogether, Wong said, but he urged authorities to make better use of its current surpluses and change some policies to boost the economy.

Hong Kong’s Financial Secretary Paul Chan Mo-po has forecast a surplus of HK$16.3 billion in the financial year 2017-18, while fiscal reserves are expected to hit HK$952 billion by the end of March next year – accounting for 37 per cent of the city’s gross domestic product.

The fiscal reserves have grown from HK$734 billion in 2012-13 to HK$936 billion in 2016-17.

Meanwhile, the proportion of Hong Kong people aged 65 or older is forecast to increase from the current 14.5 per cent to about 30 per cent by 2050.